USDA RD changes coming Oct 1st
USDA is making some significant changes to its rural development (RD) mortgage program starting Oct 1st. If you don't know the RD program, it's worth learning more. The program requires no down payment and has much lower monthly mortgage insurance than FHA.
The first change concerns that mortgage insurance. For all loan commitments after 9/30, USDA is increasing its monthly rate from 0.4% to 0.5%. That still makes it a bargain compared to FHA. For a $150k loan, the difference in total housing payment between USDA and FHA is more than $100. In fact, a homebuyer could get a $170k home, $20k more home, for the about same housing payment.
But before you load your customer in the car to look at USDA-eligible properties, know that for homebuyers with good credit, FHA allows higher debt ratios than USDA. I'm hearing USDA will not accept a debt ratio above 48% whereas I've seen FHA approvals as high as 56%. On net, your customer may be able to qualify for more home with an FHA mortgage, but that comes with a higher housing payment.
USDA bases the MI rate on the date it commits to the loan, not the date the homebuyer applies. If you have customers considering a USDA loan, they need to apply soon to beat the deadline.
The second change concerns USDA property eligibility. The RD program targets "rural" areas, but rural includes many of exurbs of the major TX cities. The new maps carve off a few of those exurbs. The USDA eligibility Web site, which I linked at the end of my blog, lets you compare the new and old maps. The main changes I noticed were the expansion of ineligible areas in Pflugerville, Round Rock, and San Marcos in the Austin area and Denton and McKinney in the DFW areas. In addition, the ineligible area on the west side of Ft. Worth expanded significantly. San Antonio and Houston escaped mostly unscathed.
USDA bases property eligibility on the date it receives the loan file. For most lenders, this will be a couple weeks after loan application. So, again, homebuyers need to act soon to beat the changes.