As of October of this year, the new funding fee for USDA Home Loans has been lowered from 3.5% to 2%. This change will reduce the amount of funding fee that the borrower will have to finance into the loan amount initially. To compensate for the loss in immediate revenue from the reduced funding fee, an annual premium of .3% percent of the loan amount has been created to better distribution over the life of the loan. USDA Loans are still the only no money down option available for borrowers who are not qualifying veterans for a VA Loan.
For example, if a potential home buyer wanted to purchase a home for $100,000 using a USDA Guaranteed Home Loan, his fee structure would look like this:
- Down Payment = $0
- USDA Upfront Funding Fee = $2,000 (This amount will be financed and paid for over the life of the loan, giving an original loan amount of $102,000)
- Monthly Mortgage Insurance = $100,000 x 0.3% annually = $300 annually divided by 12 months/year = $25 dollars each payment
If you have taken the time to review the terms of other loan programs available, it should become quite clear how USDA loans can be very advantageous for borrowers with little or no money to put down.
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