USDA Refinance Mortgage Insurance

As of December 7, 2011 USDA is now charging 1.5% up front and .3% annually as monthly mortgage insurance for all USDA Refinances.

Frankly this is not great news for anyone considering refinancing their USDA loan. With interest rates as low as they are today it means many can still gain a huge benefit from refinancing their USDA Loan. There are several factors when considering a USDA Refinance but lets clear up a few guidelines first

1. You must already be in a USDA Mortgage, you cant refinance into one
2. You must refinance into another 30 year mortgage. USDA does not offer 15, 20 or ARM's
3. Your house must appraise for the new amount including any closing costs you wish to roll in
4. You must still qualify under the USDA Guidelines including not making over the USDA income limits for your area
5. You dont have any recent late payments or are behind on your current mortgage

In order to determine if you should refinance you should talk to a USDA specialist so lets consider the following.

1. If you obtained your USDA Loan previous to October 1, 2011 you probably added 3.5% to your total loan amount and your house must appraise for at least the amount you currently owe.
2. Your new loan will have an additional 1.5% plus monthly mortgage insurance (.3% annually)
3. Closing costs are typically around $5,000
4. Your current interest rate vs what current rates are today

Lets look at a typical scenario we might see today and look at the numbers.

• $250,000 - Current total loan amount
• $1,469.15 Current monthly payment
• 5.5% - Current interest rate on existing USDA loan
• 2009 Original loan started
• $5,000 Total Closing Costs
• 3.875% Interest rate at time of refinance

Okay we take the current loan of $250,000 + 1.5% up front MI = $253,750 + $5,000 closing costs = $258,750 Now we take the new loan amount of $258,750 and add the .3% annual mortgage insurance to the 30 year fixed rate at 3.875 and your new payment is $1,281.43

Old Payment $1,469.15 / New Payment $1,281.43

Savings = 187.72 per month = $2,252.64 annually

Years until you are making money back on your refinance = 3.88 years

Of course people refinance for many different reasons and there is no simple formula that covers every scenario. The above scenario would save someone almost $70,000 over 30 years.

Unfortunately you can not take any cash out on a USDA Loan and you can not shorten the term of the loan due to the fact that there is only a 30 year fixed rate loan option. If you are considering a refinancing your USDA loan make sure you speak with someone who knows all the ins and outs of this uncommon mortgage loan.

USDA loan monthly mortgage insurance

Get ready for some upcoming changes to USDA mortgages. They are for the first time incorporating monthly mortgage insurance and its going to have an effect on how much you can borrow. The bad news is that your payment will increase however its not all bad.

USDA mortgage insurance details:

The USDA monthly mortgage insurancefor new USDA loans after October 1, 2011 will be .3% annually. The up-front mortgage insurance premium is going from 3.5% back to 2%.

What does this mean to you?

It means that although the up front premium is going down 1.5% there is now monthly mortgage insurance and your payment will go up overall. On an average 250k loan amount the increase in payment is around $44 dollars per month (at 4.5% interest.) That might not sound like a huge amount of money however if your debt to income ratio is right on the edge and you were qualified prior to October 1, you should call your USDA mortgage companyand make sure you are still qualified after the change.

Good News for USDA Loans

There is a small yet bright light in all of this seemingly endless tightening of lending restrictions of Government Programs. If you obtain a USDA loan after October 1, 2011 and sell your house before owning it for 7 years you will actually have spent less total money than under the previous guidelines (assuming you paid the minimum monthly payment and put no money down.) USDA is still 100% financing and there is still no down payment requirement so overall the program remains extremely competitive against FHA or even VA in some circumstances.

Its true USDA loans will soon have monthly mortgage insurance

Its not all bad news depending on how you look at it. The first thing to be aware of is that if you receive your guarantee from USDA after October 1st, your payment will be higher. This is important for a few reasons. First if you were pre-approved at a certain maximum amount and you are shopping for houses the amount you were approved for will decrease, second your payments will be higher, third your new USDA Loan will probably cost less money.

This is all because USDA has changed the structure of the guarantee fee for USDA guaranteed loans. The up front mortgage insurance premium is going from 3.5% down to 2% and there is now going to be USDA loan monthly mortgage insurance.

What does that look like in real numbers? I think you might be surprised...

First lets start with a 250k loan amount and compare a current USDA loan with a future USDA loan
Lets assume a purchase price of $250,000 and an interest rate of 4.5%

Current USDA Loan 250k + 3.5% up front MIP = $259,067
Monthly mortgage payment PI = $1,313

Future USDA Loan 250k + 2% up front MIP = $255,000
USDA monthly mortgage payment PI = $1,358

The future USDA loan monthly payment is $45 higher!

But... there is a $4,067 lower principle balance and considering that people move on average every five years it will most likely save you money! How? Because that $45 per month will take over seven years to reach the $4,067 more you will have had to pay back.

So in the end there is good news and bad news but this is still a fantastic program with tons of perks like:

• No down payment required
• You can finance the up front mortgage insurance premium (MIP)
• Low minimum 620 credit score requirements with many lenders
• Ability to use alternative credit with many lenders
• Cheaper when comparing USDA loan vs a FHA loan

For more detailed info check out the USDA guidelines and go to my website to ask questions or to learn more about USDA loans in Maryland

There are updated Rural Development loan income limits for the state of Maryland pertaining to USDA Rural Development loans. This refers to the maximum amount of money a household can make at the time of application.

As an example lets say that John and Susan apply for a rural development loan in Frederick County Maryland. John makes 45k Susan makes 50k however John has some shaky credit and does not meet the minimum requirement of the lender and the loan has to go in Susan's name alone. The lender would calculate only Susan when determining how much they qualify for and he would use 50k however when determining if they are within the income limit the Rural Development office would use 95k and fortunately in Frederick MD where the current income limit is now $97,950 they would be fine.

but...

What if they were also living with Susan's mom and she started a new part time job making just $500 a month. The lender would not be able to use the income because for part time income there needs to be a two year history however the Rural Development Office would consider that income of $6,000 per year and now the combined household income would be at $101,000 and unfortunately would be ineligible for a Rural Development Loan.

but...

What is John and Susan had "Little Johnny" who was 3 and was in day care three times a week at $200 per week? Now the lender still will use Susan's 50k as income to qualify her and the Rural Development office will still be using 101k as income but would deduct 10800 from their income and therefore at 91k are well within the limits for Frederick Maryland.

They have more than enough income to repay the loan, Little Johnny saved the day and they lived happily ever after!

If you want to know more about whether or not you qualify for a USDA loan, please visit my website for USDA loans in Maryland or call me 443-624-9398 day or evening.

USDA Rural Development Loans are 100 Percent Financing Loans in Maryland

USDA Loans or Rural Housing Loans are 100% Financing Loans with no down payment requirement! Ask me about how to buy a house with no money at all. Believe it or not there are only two Government loan programs that offer 100% Financing. One is USDA Rural Development and the other is a VA Loan.

A VA Loan requires VA eligibility from service in the US Military. USDA Loans on the other hand are for anyone who qualifies. There is a common myth that a Rural Housing Loan is only for First Time Homebuyers however this is not the case. There are several eligibility requirements.

First lets look at the 100% Financing aspect of the loan. You can finance up to 100% of the appraised value of the home. There is a funding fee which can be financed into the loan therefore allowing you to actually borrow 103.5% of the appraised value!

How Are We Able To Provide 100% Financing Loans?

Read More on 100 Percent Financing Loans In Maryland