USDA PMI Fee Reduction for 2016 and 2017

Great news! The USDA PMI Fee has been reduced for Fiscal Year 2017.

This means that starting October 1, 2016 until September 30, 2017, home buyers who receive a USDA home loan will enjoy lower loan amounts and monthly payments. This allows many more people to qualify for a home loan and afford a more expensive home! These new USDA Guarantee Fee Changes could get you into the home of your dreams.

USDA Loans used to be considered “farm loans” but that is simply not the case anymore.  In fact, if you contact us to purchase an operating farm, or income producing horse farm, we probably won’t be able to help you!

The USDA does not actually make loans.  They insure them – and they set up the guidelines for which they will insure the bank against a loss, if you are unable to make your payments.  This is the program that kept our Banking System solvent during the Great Recession.

The also do not call these insurance premiums PMI Fees… the “correct” term for the fee is USDA Guarantee Fee.  Because most consumers, and especially first time home buyers refer to them as a USDA PMI Fee, that’s what we are calling them here.  The fees don’t vary.

Meaning you can’t “shop” for lower USDA PMI Fees.  They are set (usually on an annual basis) by USDA, and the program is regulated by Congress.

USDA PMI Fee Reduction for 2016 and 2017

A USDA PMI Fee has two parts: the Upfront Premium Amount and the Annual Premium Amount. Both of these have been reduced! The Upfront Guarantee Premium is usually rolled into the loan, as USDA Loans feature 100% financing.  READ:  You don’t have to make ANY down payment with a USDA Home Loan NC.

The Annual USDA PMI Fee is actually paid monthly and included in the monthly mortgage payment.

Home Buyers can expect to see their total loan amount decrease due to the Upfront Fee decreasing from 2.75% of the total loan amount to a mere 1%!

Because I can do the math in my head – that means if you bought a $100,000 house last summer, we would add the upfront fee to your loan amount, and the total loan was $102,750. As of October 1, 2016 – we add the new USDA PMI Fee to the loan amount, and your loan will be $101,000. That’s the amount the Principal and Interest is based upon.

As with other Government backed loans, these upfront premium costs are not refunded, so if you sell your house, or refinance, you are not getting part of that $1000 back.

This is admittedly a small amount of money when you are talking about dollars of this size. However, in my book, every dollar saved is good news!!

Now for the monthly mortgage payment: The Annual Guarantee Fee, which if you will recall is paid through your monthly mortgage payment, will decrease from .5% to .35%.

Is this the right loan for you? USDA Loans are typically reserved for rural areas or developing small towns. However, 97% of America is eligible for a USDA loan.  Every county in North Carolina has some portion that qualifies for a USDA Home Loan NC.

There are certain debt to income requirements that need to be met in order to qualify, but the good news is that USDA hoe loans are typically used for people who do not have enough cash saved for a down payment as they feature 100% financing of the loan and secure 30-year fixed rate terms.

Because there’s no down payment, the Government does require a slightly higher credit score than some other mortgage programs. However, minimum Credit Score requirements for USDA Loans are as low as 640.

Partial List of Eligibility Guidelines for USDA Home Loans NC

• Home Buyers must be United States’ citizens, qualified aliens, or legally admitted to the U.S. for permanent residence.
• Adjusted annual household income cannot exceed the moderate income limits for the area. A family’s size and child care considerations may increase chances for qualification if deductions are applicable.
• Primary residences only
• Home must be located in rural areas. This may include open country, and places with populations under 25,000 residents.

Most mortgage programs require us to count some form of Student Loan debt in our qualifying Debt to Income ratios.    USDA Home Loan NC underwriters are the most diligent, and require that we prove that the payment is actually a fixed rate mortgage payment.

Effective March 9, 2016 the USDA Student Loan Guidelines state that we must calculate qualifications as follows:

“Include the greater of 1% of the outstanding loan balance or the verified fixed payment reflected on the credit report. Income based repayment plans (IBR), graduated repayment plans, adjustable, interest only are all subject to change & the lender must use 1% of the outstanding loan balance as the payment amount.”

Many Loan Officers do not realize this is the case – because of that, borrowers are being told they qualify for a USDA Home Loan, when in fact they don’t.  If your student loan payment is in deferment right this minute (and you are applying for a mortgage) we are required to count 1% of the balance.

This is an excellent opportunity for First Time Home Buyers and anyone who would like to take advantage of these lower fees! It is difficult for most people to suddenly increase their income, so a great way to put yourself in a position to be approved for a mortgage or afford your dream home is to save money where you can.

These new USDA PMI Fee Changes make it possible for you to buy a home, and keep your payments affordable!

Remember – you don’t have to be holding a HUGE bank deposit to buy a house these days! There are Mortgage Tax Credits STILL available for First Time Home Buyers in North Carolina!

There are also Mortgage GRANTS available from the State of NC** to help First Time Home Buyers who qualify. Not all banks offer these programs, or specialize in helping First Time Home Buyers – we do.

**A Quick Note

We refer to these programs as “mortgage grants” because there are no payments to be made, there is no interest charge, and there’s no expectation that you will have to repay ANY of the money you receive for down payment, unless you move out of the property or refinance prior to the dates assigned by your specific down payment assistance program.

The literal term for this down payment assistance program is a “forgivable loan.” Under the terms of the program that best suits you, a portion of this down payment assistance will be forgiven on a schedule that we will share with you when you make loan application. These funds are available to us through NC Housing (NCHFA) and are available through other lenders in the state as well. The interest rates for these programs, however, will not vary from lender to lender as that is set by NC Housing.

It’s a great time to buy! Lowered fees are a sign of a trustworthy and healthy housing market. If you would like more information on USDA PMI Fee Reduction call Steve and Eleanor Thorne at 919 649 5058!
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