In USDA news, the rural housing biz is abuzz over the United States Department of Agriculture (USDA) announcing lower upfront and monthly fees for its home loan program, starting October 1. Those who offer the program know that this mortgage type is extremely popular with first-time home buyers since some of its program require zero down payment. And the Rural Development (RD) loan program, as it is also known, is a favorite because it comes with cheaper monthly mortgage insurance fees than do FHA loans.

USDA fees are about to drop even further by Halloween, and many believe the USDA loan will become one of the most affordable home loans available, second only to the veteran-exclusive VA home loan. And of course this will entice renters since a USDA home loan can make owning a home less expensive than renting one. As the housing market recovers, the USDA program costs less to operate and sustain. The savings are passed on to USDA program borrowers.

For those of you who don’t know, the purpose of the USDA mortgage is to promote homeownership in rural areas. But what is “rural?”  Many suburban neighborhoods are eligible for USDA financing. Buyers often use this program just outside of major metropolitan areas. The loan offers 100 percent financing, meaning no down payment is required. Some lenders may have overlays, but straight guidelines indicate that applicants with credit scores down to 640 are eligible.

Similar to FHA loans, the USDA mortgage requires two types of fees: an upfront guarantee fee and a monthly fee. The term “guarantee” simply refers to USDA’s loan backing that allows lenders to issue loans according to its guidelines. The upfront guarantee fee stands at 2.75 percent of the loan amount, and the “annual fee” is currently 0.50 percent, paid in twelve equal installments and included in each mortgage payment.

As mentioned above, however, we learned in mid-May the upfront fee will be reduced from 2.75% to 1.0%. And the monthly fee will also drop from .5% to .35%. Lenders who do rural loans know that the upfront fee is typically added to the loan balance so that home buyers do not have to pay it in cash. And the monthly fee rate is dropping to 0.35 percent annually, or about $30 per $100,000 in loan balance.

Ruth Schoenherr is a mortgage broker who will help you find home loans in the Clearwater, Palm Harbor, Largo, Safety Harbor, St Petersburg and Tampa Bay area. For more information, go to her web site at www.ClearwaterMortgageBroker.net.