Mortgage Myth Busters: USDA Loans in New Jersey - New Changes - Part 1 of 2

USDA Loans in New Jersey - New Changes - Part 1 of 2

 

There will be a major change regarding USDA loans in New Jersey and for all other states come the fall of 2011.

USDA loans will now have annual mortgage insurance, which is also known as monthly mortgage insurance, which begins October 1st, 2011. This move was approved through Congress last year.

 

What will be collected and how much?  The charge will be .30 basis points.

Example:

Changes to the USDA loans regarding monthly mortgage insurance

 

As it stands, there is no monthly mortgage insurance right now.  The monthly fee will be based on the guaranteed loan amount. You can use simple math and say for every $50,000, the monthly mortgage insurance will be $12.50.  So for a $100,000 loan amount, your monthly mortgage insurance will be $25.00 a month. Keep in mind that my examples above won’t be this exact when doing a USDA loan, because of the formula that is used. But it will be very close.

Reminder :  The USDA monthly mortgage insurance will always be there, that it will never fall off as long as you have the USDA loan. This is unlike FHA loans, that it could fall off when you hit the 78% LTV. (fyi – There are reasons why your FHA or conventional mortgage insurance could fall off at 80% or not fall off even if you hit 78%)

 

Another change on USDA loans

The upfront guarantee fee for purchase loans will decrease from 3.5 percent to 2.0 percent of the loan amount. This change will also take place on October 1st, 2011.

comparing USDA loans with and without mortgage insurance

As you can see, the Guarantee Fee will lower the payment by $12/month, but the overall payment will be higher by $24.50 because of the monthly mortgage insurance on USDA loans that will go into effect on October 1st, 2011. The figures I used in my examples are not 100% accurate, because of the USDA calculations. Example : On a $100,000 purchase with zero percent down and with the USDA guarantee upfront fee of 3.5%, your loan amount would be $103,626, not $103,500. It gets a little complicated and it only changes the payments in these scenarios by less than a dollar.

 

 

Summary :  The new USDA loans changes for New Jersey starting October 1st, 2011 will reduce a borrower’s buying power by about $1,400 for every $50,000.  There is also a hidden secret in the formula regarding the monthly mortgage insurance.  The monthly mortgage insurance payment will decrease every 12 months for as long as you have the USDA loan or until it’s paid off. This reduction is based on the remaining principal balance after each 12 months. As mentioned above, the USDA monthly mortgage insurance never falls off, no matter what LTV (loan-to-value) is established while having the USDA loan. Lastly, one needs to remember that USDA loans are area specific and have income restrictions. USDA loans can’t be used by everyone unlike FHA loans, that can typically be used by anyone buying a primary home. The end result is if you compare USDA loans to FHA loans, and if you can obtain a USDA loan, they are cheaper all around with both the total mortgage payment and less cash required at closing. This based on monies upfront, not how long one would hold onto either loan, which is a different comparison.

 

 

 

 

 

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comment balloon 18 commentsJeff Belonger • March 10 2011 11:01AM

Comments

We don't do much USDA in So CA so I was not aware of this yet.  Thank you for the informative post.

Posted by Steve McCoole (Mortgage Alliance Group - San Diego, CA - NMLS#305667) almost 10 years ago

Jeff - Great info for buyers who may be able to use the USDA program.  I've Tweeted the post from the other site.

Posted by John Mulkey, Housing Guru (TheHousingGuru.com) almost 10 years ago

Jeff - thanks for sharing and keeping us posted of the USDA rule changes for 2011. First FHA changes and now USDA...what is next???

Posted by Les & Sarah Oswald, Broker, Realtor and Investor (Realty One Group) almost 10 years ago

Jeff, although there will be an additional cost with the loan, USDA loans are still a good deal for people who qualify. Thanks for the update.

Posted by Michael Setunsky, Your Commercial Real Estate Link to Northern VA almost 10 years ago

Great Info, Thanks Jeff

Posted by David Krichmar, DaveYourMortgageGuy.com (www.DaveYourMortgageGuy.com - Legend Lending) almost 10 years ago

Nicely explained Jeff. I like what they did with these adjustments. I think the lowering of the guarantee fee is a good thing. That 3.5% is quite a chunk.

Posted by Greg Miller, Florida Home Loans - Conventional,FHA,USDA,VA (Ruoff Home Mortgage ) almost 10 years ago

Interesting that the MI doesn't fall off even after the LTV pans out.  They've got to squeeze more from borrowers?!?

Posted by Carla Muss-Jacobs, RETIRED (RETIRED / State License is Inactive) almost 10 years ago

Great post, Jeff.  Sorry that buyer's purchasing power is reduced due to MI.

Also, maybe I miscalculated, but isn't the MI cost $25.00 for a $100,000 loan?

Posted by Bill Burchard, Broker, Realtor, Representing Buyers and Sellers (3B Realty: 951-347-3818, CA) almost 10 years ago

Jeff good post.  USDA is calling this a fee not mortgage insurance.  Will home buyers be able to deduct this annual payment on their taxes?  You can on monthly mortage insurance.  I wasn't able to find an answer.

Posted by Shay Campbell, Raleigh, NC (Universal American Mortgage Company) almost 10 years ago

Thanks for the info Jeff, timely and pertinent.

Posted by Bill Rozek, NMLS #214260 (Embrace Home Loans, Inc.) almost 10 years ago

Thanks for the email from linkedin on it Jeff...i can't believe the burden they're putting on 'good'borrowers to pay for the past 'bad' borrowers!

Posted by Ginny Gorman, Homes for Sale in Southern RI and beyond (RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate) almost 10 years ago

Jeff,

Wouldn't it make sense for USDA to be a little kinder to those in the GARDEN State? Some quid pro quo...

Posted by Irene Kennedy RealtorĀ® in Northwestern NJ (Weichert) almost 10 years ago
Incredibly informative post! I have some clients who can benefit from this information. Thanks for the post!
Posted by Thomas Staples, (407) 476-4993 (La Rosa Realty) almost 10 years ago

Have not come across these loans before, thanks for the info, see they are used elsewhere in PA but obviously not in our area.

Posted by Nick Vandekar, 610-203-4543, Tredyffrin Easttown Realtor, Philly Main Line (Long & Foster Real Estate Inc 610-225-7400) almost 10 years ago

 

Just wanted to thank everyone for stopping by and for the polite comments. I usually reply to each person directly, but will only do so with this post if there is a direct statement and or question. thanks

 

@ Sarah... I really don't have a problem with the changes made to FHA loans and now to USDA loans, not if we want them around down the road. There is talk that conventional loans could go to 10% down... if USDA or FHA folded because they could not sustain income to keep these programs running.. and then if the gov't took over 100%.. who knows what would happen then. thanks

Carla... one could say squeeze... but if it keeps USDA loans around, which are still cheaper upfront, maybe not over the life of the loan... it's the price one would pay. thanks

Bill.. bingo... simple math mistake on my part. Yes, if I am showing $12.50 for every 50k, it would be $25 more for 100k. Thanks for pointing that out.... because if you look at my 150k example, it's $37.50.  thanks

Shay... I have an answer from an accountant and they say yes, the upfront can be written off... but I don't like to give those details out, since I am not a CPA or an accountant. I just say.. speak to your accountant.

Irene... I don't think I follow... because I mentioned this is the same for all states. I just included New Jersey for SEO. thanks

Again, thanking everyone for their kind words and comments.. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Jeff, do you have a link for where this has been published by USDA?  I wasn't able to find it when I searched.  Thanks.

Posted by Bill Rozek, NMLS #214260 (Embrace Home Loans, Inc.) almost 10 years ago

 

Bill... please send me your e-mail address to jbelonger@ihmci.com and I will forward you the memo from USDA.. thanks

 

Posted by Jeff Belonger, The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans ( Social Media - Infinity Home Mortgage Company, Inc) almost 10 years ago

Thanks Jeff, the letter just arrived internally at my company.  I appreciate your response and kind offer.

Posted by Bill Rozek, NMLS #214260 (Embrace Home Loans, Inc.) almost 10 years ago

Participate