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.
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.
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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