Business & Merchant

Last Updated on Saturday, 29 October 2016 16:00

By Roger Dolanch - Broker/Owner

Yes, it is true! As of October 1, 2016, USDA has lowered its mortgage insurance costs for both the upfront and monthly fees! Eligible households can purchase eligible properties by securing a no down payment USDA mortgage loan and finance the initial Mortgage Insurance Premium of 1% of the loan amount, and finance a total of up to 101% of the sale price!

This may sound too good to be true for many people, but there are no hidden problems. Interest rates and closing costs are in line with other types of loan programs and there are never any prepayment penalties.

USDA mortgage-insured loans are backed by the U.S. Department of Agriculture. What makes them so attractive is that they are available to home buyers with below-average incomes, offer 100% financing with reduced mortgage insurance premiums, and may even offer below-market mortgage interest rates.

This type of loan is particularly ideal for households that manage their credit wisely, make payments on time, but may not have sufficient savings to qualify for other types of mortgage loans.

It is specifically intended to help eligible suburban and rural home buyers. 97 percent of the geographic United States is in USDA loan-eligible territory. It will not apply in urban areas. To discover if a property is eligible, simply do a search for “USDA Eligibility” and enter the property address. The interactive map will let you know if the property of interest to you is located within an eligible area or not.

The mortgage itself will be for a fixed interest rate, with either a 15- or 30-year loan term. No adjustable rate loans are permitted. The Mortgage Insurance Premium rates are 1% upfront paid at closing.

USDA mortgage insurance rates are lower than those for comparable FHA loans or even conventional mortgage insurance.
• FHA mortgage insurance premiums include a 1.75% upfront mortgage insurance premium, and 0.85% in MIP annually
• Conventional loan private mortgage insurance (PMI) premiums -- even via the 3%-down HomeReady™ program -- can range above one percent annually

As you can see, with USDA loans, the mortgage insurance premiums are just a fraction of what you'd typically pay, which is why USDA loans can be extremely affordable.

Because of the USDA guarantee, lenders making USDA loans today are protected against loss in a way that loans via the FHA or any other agency cannot provide. With lower risk to the investor comes lower rates. Only VA loans, which are backed by the Department of Veterans Affairs, offer a similar guarantee (and similarly low mortgage rates).

Remember that the USDA Rural Housing Program, your home must be located in a rural area. However, the USDA's definition of "rural" is liberal. Many small towns meet the "rural" requirements of the agency, as do suburbs and exurbs of most major U.S. cities. 97% of the United States is USDA loan-eligible. Only 3% is ineligible.

To discover more about 101% financing, feel free to call your local CENTURY 21 Frontier Realty branch office today. Our professionals will gladly guide you every step of the way!