Bulls & Blogs

USDA to make its loans more affordable

Loan Programs, Owner-occupied, Residential Mortgage Comments Off

May 072016

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The USDA recently announced that for fiscal year 2017 (which begins on Oct 1st) it’s dropping the fees it charges for its guaranteed rural housing loans. Currently, USDA charges an upfront guarantee fee of 2.75% of the loan amount and an annual fee, or monthly mortgage insurance (MI), of 0.5%. On Oct 1st, those rates drop to 1% and 0.35%. That really is a huge change.

So, how would that affect a potential homebuyer? Let’s say you’re trying to buy a $180k home. Remember the USDA program doesn’t require a down payment, and most folks roll the upfront guarantee fee into the loan, so we have a roughly $185k mortgage. Using today’s fees, the monthly principal, interest, and MI payment would be about $908.

Okay, what if the fees are at 2017 levels? The monthly payment drops to $869. Over the life of the 30-year loan, that $39/m adds up to more than $14k in savings.

I find the timing of the announcement interesting. Based on our experience, USDA has lost of lot of market share to FHA, which lowered its mortgage insurance rates last year. While I suspect the announcement will shut down use of the program for the summer, maybe it will build some anticipation for it again in the fall.

USDA making housing loan a bit more expensive

Loan Guidelines, Loan Programs, Residential Mortgage Comments Off

Aug 052015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

USDA is raising its guarantee fee for the Rural Development home loan program on Oct 1st. The Rural Development program is one of the few no-money-down loan programs. It’s only available in areas USDA considers rural in nature, but that definition includes a lot of exurbs of major TX cities.

The guarantee fee is up-front mortgage insurance due at loan closing. Most borrowers choose to roll the fee into the loan amount rather than pay it at closing.

The fee is rising from 2% to 2.75% of the initial loan amount. On a $150k home, that will raise the monthly payment by about $5.50 at today’s interest rate.

USDA is not changing its monthly mortgage insurance rate, called the annual fee, which remains 0.5% of the loan balance.

Please note that USDA will apply the change based on the date it commits to the loan, not the date the borrower applies. In order to beat the change, you really need to find a home this month as it generally takes about 30 days from contract signing to USDA loan approval.

Senate considers tax on homeownership

Residential Mortgage Comments Off

Jul 292015

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

This really gets my knickers in a knot. The Senate is again considering using fees on Fannie Mae and Freddie Mac mortgages, which represent the majority of market, to fund its spending plans. The Guarantee Fee or “g-fee” is charged by Fannie and Freddie to compensate it for the risk associated with guaranteeing a mortgage. In 2011, Congress raised the fee by 10 basis points to pay for a payroll tax break. This time, the Senate wants to extend the fee hike for 4 more years to help pay for transportation funding.

This is an easy move by the Senate because homebuyers generally are unaware of this special tax. There isn’t a “g-fee” line on the closing statement. Instead, the fee is reflected in the interest rate. What the homebuyer sees is a slightly higher rate or slightly higher closing costs. Either way, it acts as a tax for as long as the homebuyer owns the home.

So far, the House is pushing for a temporary extension of existing transportation funding and hasn’t agreed to the Senate’s fee increase. However, given the invisibility of the tax, it wouldn’t surprise me to see the House go along.

USDA raising monthly mortgage insurance rate

Loan Programs, Owner-occupied, Residential Mortgage Comments Off

Sep 042014

For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

By G. Steven Bray

The USDA RD loan is a great option for homebuyers in more rural locations. The loan requires no down payment and has much lower monthly mortgage insurance than an FHA loan.

Unfortunately, the gap between the two will close a little this year. For all loan commitments after 9/30, the USDA is increasing its monthly MI rate from 0.4% to 0.5%.

That still makes it a bargain compared to FHA. While USDA does have a higher up-front fee, 2% vs. 1.75% for FHA, look at the difference in monthly payment between the two. For a $150k FHA loan, the monthly payment including mortgage insurance would be about $863. For a USDA loan, the payment would be about $757, more than $100 less.

If you’re thinking about using a USDA loan, be aware that USDA bases the fee increase on the date it commits to the loan, not the date you apply. You probably should make your loan application no later than next week if you want to beat the deadline.