Kentucky USDA Rural Development has long been the 100% financing leader for a lot of areas across the nation. One of the major benefits of this loan product was that it required no monthly escrows for an annual mortgage insurance (MI). MI is sometimes referred as PMI, and the loan is advertised many times as 100% Financing with No PMI. That’s all going to change come October 1, 2011.
Following in the footsteps of what the Federal Housing Administration (FHA) did back in October of 2010, USDA will be lowering the up-front guarantee fee. FHA lowered their fee from 2.25% to 1%. USDA will be lowering their up-front guarantee fee from 3.5% back down to the 2%. That’s a nice change!
THE BIG CHANGE!
However, the other change is that it will now require a 0.3% annual mortgage insurance fee. While this fee is an annual fee, it is collected monthly in escrow like most mortgage insurance payments. In it’s basic form, on a $100,000 loan the calculation would be like this:
100,000 X 0.3% = $300 annual fee
$300 annual fee / 12 mo = $25/mo
Here’s a look at an example of a $100,000 of how it is currently and how it will change come October 1, 2011. Keep reading below for a look at the comparison of how a loan will look now vs. after Oct 1, 2011.
Assumptions: $100,000 purchase price with $0 down payment. 5% 30 year Fixed Rate. No monthly escrows for property taxes, homeowner’s insurance and/or HOA’s are included.
NOTE: Before someone picks apart my calculation of the guarantee fee, and total loan amount, and annual MI calculations, this is simplified just to show the basic differences.
|Current – Sep 30, 2011||On or after Oct 1, 2011|
|Up-front Guarantee fee = 3.5%
Annual MI = 0%
$100,000 base loan x 3.5% fee
Total Loan Amt = $103,500
Total Fees collected by USDA:
|Up-front Guarantee fee = 2.0%
Annual MI = 0.3%
$100,000 base loan x 2.0% fee
Total Loan Amt = $102,000
It’s fairly clear that Kentucky USDA Rural Development is hopefully taking strides to make itself self-sufficient where it doesn’t have to rely on funding from the federal government each year. October 1, 2011 will begin a new fiscal year.
This change will affect any new Kentucky USDA loans where the conditional commitment is issued on or after October 1, 2011.
- Refinance your Kentucky Mortgage Loan (louisvillekymortgage.net)
- Kentucky USDA Rural Development Guaranteed Section 502 Loans (kentuckyusdaloan.wordpress.com)
- Kentucky USDA Guaranteed Rural Housing Mortgage Guidelines (kentuckyusdaloan.wordpress.com)
- FHA Mortgage Insurance for Kentucky Mortgage Loans (louisvillemortgageguide.com)
- Are There FHA Home Building Loans? (homebuildingsmart.com)
- USDA Has $11.2 Billion to Guarantee No-Down Mortgages in Kentucky (kentuckyusdaloan.wordpress.com)
- Louisville Kentucky mortgage rates September 3, 2011 (louisvillekymortgage.net)
- Credit Scores and the Kentucky USDA Rural Development Loan Program (kentuckyfirsttimehomebuyer.com)
- Kentucky USDA Mortgage (kentuckyusdaloan.wordpress.com)