The USDA upfront guarantee fee is constantly changing. The good news is that as of October 1, 2016, the fee will drastically decrease. The amount will go from 2.75% of the loan amount to just 1% of the loan amount. This is a significant savings for low income borrowers!
A Popular Loan
The USDA loan has always been a popular loan, especially with first-time homebuyers. It’s particularly easy to qualify for guidelines have always been enticing as is the need for no down payment. Securing 100% financing with low interest rates is hard to come by!
With the decrease in the upfront guarantee fee coming up, the loan is bound to become even more popular as it will only be second to the VA loan which is only available to veterans. With the lower fees, it will be cheaper for low to moderate income families to purchase a home rather than rent one.
The USDA Upfront Guarantee Fee is Paid at the Closing
One of the hardest parts of securing a USDA loan was having the money to pay the USDA Upfront Guarantee Fee because this money was due at the closing. If you did not have the cash to pay it, you would not be able to close on the loan. With the rates at 2.75% right now, that is a significant amount of money. Even on a $100,000 loan, the fee is $2,750.
The good news is that there were always options to get the upfront fee paid. The most common method was to receive a gift from friends or family members. If you were able to receive a gift to cover this fee, you could use it to qualify for the loan.
Another option to get the upfront fee paid was to negotiate the fee with the seller. This might not seem like a logical thing to do, but many sellers are willing to help in order to get their home sold. In order for this situation to work out, though, you have to be able to get the right value for the home. Because the seller contributions get figured into the sales price after you figure out the agreed upon sales price for the home, it means the sales price will be higher. If the value of the home is not as high as the new agreed upon sales price, the seller would be unable to help you with the upfront guarantee fee.
The Immense Savings
With the drastic drop in the upfront guarantee fee, many more borrowers will be able to afford USDA financing. Because there is no down payment required and now a lower upfront fee, the USDA loan will become even more affordable.
Let’s look at an example: If you borrow $100,000 now, you would pay $2,750 upfront. If you waited until after October 1st, you would pay $1,000 upfront. This equals a savings of $1,750, which you could use for so many other things when it comes to home ownership!
If you are interested in a home in a rural area, consider applying for USDA financing. You can check your eligibility for this program here, where you can determine your household income and if it would fall within 115% of the range for your area. If you are able to meet those requirements, you could qualify for some very affordable mortgage finance that might help you make home ownership a reality for you once and for all.
Start shopping around for your USDA loan today to reap your savings and purchase the home you desire!