Huge Decrease in the 2016-2017 USDA Funding Fee & Annual Fee!
The USDA Funding Fee is a key part of the USDA home loan program and basically pays for the program. First, USDA mortgage loans are so popular (especially in NC, SC, and Virginia) because it allows homebuyers to purchase with no money down. Additionally, USDA loans provide a fixed 30 year payment. Now USDA just got better!! The 2016-2017 USDA Funding Fee is decreasing dramatically and even the Annual Fee is decreasing as well. Because foreclosure and delinquency rates have fallen to historic lows, USDA could afford this reduction. Less risk means less costs. USDA Rural Housing Service Administrator Tony Hernandez said “When our borrowers succeed, the program succeeds. Excellent overall performance in our single-family housing guaranteed loan program means we can charge less for the life changing opportunity to own a home.”
USDA Funding Fee Decreases to Help Homebuyers
The USDA National Office just announced on April 28th that effective with guaranteed loan obligations on or after October 1, 2016 through September 30, 2017, the up-front USDA guarantee fee is DECREASING significantly from 2.75% to only 1%.
This USDA up-front fee is financed on top of the base loan size just as it is done for VA and FHA loans so the change does not require the buyer to bring less money to closing. But this change will make a borrower’s payment a few dollars lower per month and the amount borrowed will be less. Learn how the USDA Annual Fee is a little different from traditional PMI here.
The Up-Front USDA guarantee fee decrease will also apply to USDA Streamline or Pilot Refinances. A streamline refinance allows homeowners with a current USDA mortgage to potentially lower their monthly payment. In addition, this streamline refinance doesn’t even require an appraisal!
USDA Annual Fee Decreases to Lower Monthly Housing Payments
Most are familiar with mortgages having a form of mortgage insurance when putting down less than 20%. USDA’s form of PMI is called an annual fee. It is called an annual fee because it is based on the mortgage balance at each annual anniversary. First it is calculated by multiplying the Annual Fee Factor times the current balance. Then, it is divided by 12 to come up with the monthly figure to include in the escrow part of the mortgage payment. Finally, there is the big news! The Annual Fee for the Fiscal Year 2017 will reduce from .50% to .35%. This gives another benefit to buyers using USDA as their financing option.
Official Fiscal Year 2017 USDA Announcement
The full official USDA Rural Development unnumbered letter dated 4/28/16, can be read here . USDA loans must go through all required steps. First, the mortgage lender fully underwrites the file. Second, USDA reviews and approves a complete loan package. Finally, USDA issues form RD 3555-18 which is the “Conditional Commitment for Single Family Housing Loan Guarantee” to the lender.