USDA Funding and Eligibility Map Changes
The USDA is making two major changes to its home loans programs on October 1st. 1st, mortgage insurance will be required for USDA home loans as of October 1st for the first time. Mortgage insurance was not required in the past. 2nd, USDA eligibility maps that show areas eligible for USDA home loans will be changed.
USDA mortgages haven't needed a mortgage insurance premium (MIP) in the past. That is changing come October, but other changes will make the addition easier to swallow. There's a funding fee that currently 3.5% of the amount of property mortgaged. That fee will fall to 2.0% when the new structure goes into place.
The decline in the funding fee will partially offset the 0.3% mortgage insurance payment that will be owed on a monthly basis. For instance, on a $100,000 mortgage, the 0.3% fee, or $300 will be added to the annual mortgage payment for a $25 per month increase.
The mortgage insurance premium is designed to help protect against defaults. Mortgae insurance premiums have been part of USDA homes for years, so it makes sense that they are added to USDA loans to protect taxpayer funds.
USDA mortgages are targeted toward low to middle income rural and agricultural area families and are guaranteed by the federal government. Most of the locations that were classified as rural when the previous USDA eligibility maps had been drawn have developed to be more suburban areas. The new eligibility maps are expected to remove those areas that have grown beyond USDA targets.
If you live in a truly rural area, no down payment USDA loans are likely to remain in place for you. However, if the home you want to buy is in an area that has grown beyond 25,000, you may be considered ineligible after October 1st. Even though that area may no longer be eligible, look at the maps to determine if a nearby town is eligible. You may need to move a few miles to find an eligible home.
USDA mortgage loans are especially good for first time home buyers who may not have the down payment money required for a conventional loan. USDA home loans require no down payment and the credit requirements are not nearly as strict as conventional loans.
It doesn't matter if you're an old hand at buying homes, or a first time home buyer, it's prudent to think about USDA home loans for your house purchase. Interest rates are very competitive and closing costs and the funding fee can be rolled into the loan to keep your out of pocket expenses to a minimum. You will be expected to move into the home using these loans, so they are not good for second or vacation homes.
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You can find out more about USDA Home Loans at http://usdahomeloans.posterous.com/ and a getting a USDA Mortgage at http://www.usdahomeloans.biz/rd
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