An annual fee (similar to FHA's monthly mortgage insurance) in the amount of .3% of the loan amount will begin, as well as the upfront Guarantee fee will be reduced from 3.5% to 2% (refinances will remain at 1%). This only applies to new USDA Guaranteed (not Direct) Rural Housing purchase or refinance loans obligated on or after October 1st, 2011. Loans obligated prior to then will not have those changes. Obligated means when USDA issues their conditional commitment (after underwriting at the lender is complete).
On a $100,000 loan, it would translate to a monthly USDA Guarantee Fee of $24.87.
For people who love to read fine print: Administrative Notice 4551 (.pdf link)
From what I read????
The .3% fee is for the life of the loan?
How are you charged the 3.5% fee? Is it paid over the 30yrs of the loan?
What in your opinion is the better deal? The way it stands or after Oct 1st?
Yes the .3% fee is charged annually until the loan is paid off, as USDA did not state there would be an event which would make the annual fee end.
The initial 3.5% fee (soon to be 2%) can be paid entirely out of pocket, or can be entirely financed into the new mortgage amount... which you'd pay interest on over the life of the loan.
For people who plan on having a USDA loan for greater than 5 years, the current format would be better. Less than 5 years, then the new fee format would be better.
Old format = 3.5% fee, and nothing else.
New format = 2% fee, then annual .3% fee. So you can see after 5 full years (5 x .3 = 1.5) it'll breakeven.
Bumping this, as it is becoming more relevant. There is no further word from USDA on if it's going to happen or not, so one should assume it is happening.
Some reminders and information regarding the upcoming change.
Effective Date: According to RD Administrative Notice (AN 4551), all loans obligated on or after October 1, 2011, will be charged an annual fee. What date does RD consider to be the obligation date?
Response: The Obligation date is the date of the Conditional Commitment. The date can be found in the bottom left corner of Form RD 1980-18, “Conditional Commitment For Single Family Housing Loan Guarantee.” Response: The annual fee of 0.3 percent is applicable for all loan applications (purchase, new construction and refinance transactions) with a Conditional Commitment dated October 1, 2011 and thereafter. If the Conditional Commitment is dated prior to October 1, 2011, the loan is not subject to an annual fee.
Obligation Date: If a loan request is submitted to RD on or before September 30, 2011, but cannot be obligated until October 1, 2011 or later, will the loan be subject to an annual fee?
Response: Yes. All loan requests with an obligation date of October 1, 2011 or later will be subject to an annual fee….NO EXCEPTIONS.
Guaranteed Underwriting System (GUS): Will GUS be updated to accommodate the annual and up-front fees for loans that cannot be obligated by September 30, 2011?
Response: Yes. Software deployment for GUS is scheduled for implementation on September 21, 2011 to accommodate the annual fee for loans that cannot be obligated prior to October 1, 2011.
Conditional Commitment Expiration: Will a loan be subject to the annual fee if the Conditional Commitment expiration date is on or after October 1, 2011?
Response: If the Conditional Commitment is dated prior to October 1, 2011, the loan will not be subject to an annual fee as the loan should already be obligated with FY 2011 funds that are not subject to an annual fee.
Conditional Commitment Extension: If the lender requests an extension of a Conditional Commitment that was originally issued prior to October 1, 2011, will the annual fee provision apply?
Response: No. A Conditional Commitment is effective for 90 days from the date of issuance. The funds for the loan should already be obligated with FY 2011 funds that are not subject to an annual fee. Upon request from the lender, RD may grant one (90) day extension. If construction is involved the expiration date determined by RD may correspond with the projected completion of the project. Please note it is the lender’s responsibility to request an extension of the Conditional Commitment. Lender’s failure to request an extension may result in the de-obligation of the loan by Rural Development. If for any reason a loan is de-obligated by Rural Development on or after October 1, 2011, any subsequent request for a Conditional Commitment will be subject to the annual fee provision….NO EXCEPTIONS.
Up-Front Guarantee Fee: According to RD, AN 4551, the Up-front Guarantee Fee will decrease to 2% on October 1, 2011, is this still correct?
Response: Yes. For fiscal year (FY) 2012 which begins October 1, 2011, the up-front guarantee fee for purchase transactions will decrease to 2 percent and will remain at 1 percent for refinance transactions.
Calculating the Annual Fee: How will the annual fee be calculated?
Response: Based on the total loan amount (including any up-front guarantee fee financed in the loan), the initial fee for the first year of the loan will be determined and calculated based on the scheduled average Unpaid Principal Balance (UPB) for the first year. Remaining years of the loan will also be calculated and charged on the scheduled average UPB , not the actual UPB. An Upfront and Annual Fee Calculator is available for public use to assist in calculating the upfront and annual fee. The Guaranteed Underwriting System and the internal Guaranteed Loan System will also calculate and display an annual fee loan amortization schedule once the new software is implemented in late September.
Fee Calculator: To ensure the fee is accurately calculated, is there an RD Annual Fee Calculator to assist with calculation of the fee?
Response: Yes. The annual fee calculator is now online, and located at: https://usdalinc.sc.egov.usda.gov/USDALincTrainingResourceLib.do
Lender Collection of Fees: Since the annual fee will be payable each year, are lenders allowed to establish an escrow account to collect the fees from the borrower on a monthly basis?
Response: Yes. Lenders may establish an escrow account to collect the annual fee from the borrowers on a monthly basis.
Premium: Does the premium remain the same even if a customer makes additional principal payments?
Response: Yes. The annual fee is based on the scheduled average UPB and gives no consideration for additional principal payments or delinquent accounts where the actual average UPB is greater or less than the scheduled average UPB.
Thanks Shane for posting this. We are in the process of getting a loan closed. The underwriters for the lender just completed and approved our USDA guarantee loan. It is now being sent to USDA for review and final approval. At what point, do we know we have a conditional commitment? Do we already have this since the lender's underwriting has approved the loan? Or do we wait for the final approval from the USDA office? We are really hoping to avoid paying this additional $40-$50 a month for our loan.
Thank you very much for all this information. My loan was submitted to usda for approval today and I am desperately hoping to get it approved before the Oct 1st deadline. However, I did have a question in case I did not make it. What are the rules for refinancing out of a USDA guaranteed loan? You had said that at the 5 year mark you would basically break even, so would I be able to refinance to a conventional mortgage at that point? Or is there some kind of rule against doing this?
@ Lostgirl - it has to be sent from the lender to USDA for the conditional commitment. USDA reviews it, and then afterwards issues the conditional commitment to the lender at the end of their review. Hopefully you are in your home by now.
@ kontra - you can refinance out of a USDA loan at any time, there is no requirement for you to stay in the loan for a certain amount of time before you can refinance.
Just wondering exactly what the USDA considers, " Families must be without adequate housing," Would renting be considered adequate housing??? This is kinda confusing to me.....My rental is barely adeqate! My Mom's is adequate, but I want to purchas a home so I can take care of her.
Any iea what credit scores are available?