USDA Rural Development loans will have
monthly mortgage insurance October 1, 2011
The up front monthly mortgage insurance for all USDA guaranteed loans will change on October 1, 2011 and there will now be USDA monthly mortgage insurance. The
new up-front MIP will go from 3.5% to 2% and the USDA monthly mortgage insurance will be .3%. What does that mean to you? Higher payments but less to pay back… Lets take a look at some numbers
Old Vs New USDA Loan at $250,000
Old USDA Loan (Before October 1, 2011)
Loan Amount 250k
Up Front Mortgage Insurance 3.5% $9,067
Total Loan Amount $259,067
Monthly Mortgage Payment (4.5% interest rate) $1,313
New USDA Loan (After October 1, 2011)
Up Front Mortgage Insurance 2% $5,000
Total Loan Amount $255,000
Monthly Mortgage Insurance $63
Monthly Mortgage Payment (4.5% interest rate) $1,358
Difference = +$45 Per Month
That does not sound like a ton of money but it could mean the difference between your ability to qualify for your dream home or not. There are several things to consider when contemplating the new USDA loan split fee structure. For a more detail check out the USDA loan guidelines
- The up front MIP can be rolled into the loan amount (soon to be 2%)
- There is still no down payment required
- You will have less to pay back because the up front MIP is going down from 3.5% to 2%
- In the two examples above the old USDA loan would have a principle loan amoun$4,067 higher than the new USDA loan
Looking at this another way, you will likely save money with the new split guarantee fee.
The new loan is + $45 more per month
The old USDA loan has a $4,067 lower principle balance
So it would take 90 months or 7.5 years at $45 a month to recoup the $4,067
Since the average Americans move every 5 years you will likely save money with the new structure!
What is monthly mortgage insurance and why do you need it?
First of all in order to get a loan without any mortgage insurance most mortgage companies and banks will require a 20% down payment. This will ensure that if you miss your payment, they can still sell your house and not lose money. There are many different loan types that offer different variations of mortgage insurance and down payments. Many of the popular programs are Government programs FHA, VA, and USDA.
Each program has set guidelines for the guarantee of a loan and the banks and mortgage companies sell them. In event that you default and the bank has to sell your house they will cash in the insurance policy and recoup a portion of or the total of their loss. It makes sense that if you stop making payments after your third payment, the bank has to spend money to kick you out and foreclose then hire a Realtor and possibly perform repairs on the house. In that case the 2% or 3.5% they paid for the insurance is minimal and all is well.
Is a USDA loan | Rural Development loan the right choice for you?
There are a lot of factors to consider however a USDA loan vs FHA loan shows its a no brainer if you qualify. The two main things to consider are whether the house you are looking at is within a USDA eligible area and does your household income qualify.
If you would like to speak to a USDA loan expert call me “Brian” at 443-624-9398 or want to see if you qualify, hit the big red apply now button to the right and someone will be in touch within a few hours during normal business hours. Even with monthly mortgage insurance, USDA loans are a great choice for those who qualify.