Rural Development adds monthly fee effective October 2011

By
Mortgage and Lending

The biggest advantage of Rural Development home loans is of course the No Down Payment. A second great feature of Rural Development loans has been that they had no monthly mortgage insurance, an upfront funding fee was included with the loan, but no monthly charge.

Effective October 1, 2011, the benefit of no monthly fee will change.

Rural Development is adding an annual fee  charged to lenders of .3%. For a $130,000 Rural Development purchase loan, about the median for Chattanooga home purchases, the annual fee would be about $450. The actual fee will be based on a projected average.

Lenders will be billed annually for the fee. This is a new announcement, so no one has plans in place to collect from the fee from borrowers. I am certain though that the fee will be billed monthly with the regular payment escrows.

In effect this will become an equivalent to mortgage insurance. In the example above the charge would add approximately $37.50 to the monthly payment, for the first year.

The change is effective in October 1, 2011

The upfront guaranteed funding fee will drop to 2%. It is currently 3.5%

The annual fee will be paid at closing for the first year, and billed annually in subsequent years. The upfront fee will probably still be added to the loan amount. It looks like the initial annual fee though will be collected as a closing cost. I did not see any suggestion in the memo that it would be added to the loan amount.

The fee is actually not called mortgage insurance, but a fee. The fee is calculated annually based on the Average Loan Amount for the coming year. But the fee does not drop off at a certain loan to value amount. Mortgage insurance typically drops at 80% or so. This fee is lower with each year but it carries through to the full term.

The change is effective October 1, 2011.

The stated purpose of this change is "to make the Single Family Housing Guaranteed Loan Program (SFHGLP) subsidy neutral, thus eliminating the need for taxpayer support of the program." This seems to be consistent with the housing goals as put forth in the Administration's white paper on the future of housing, published on February 13.

It is consistent also with the recently announced increase in FHA mortgage insurance costs. 

New regulations allow for Rural Development to charge as high as 3.5% upfront and .5% annually, but the program will start with the 2% upfront and .3% annually.

If you have any questions about this or Rural Development home loans for the Chattanooga area, feel free to contact me via my website, www.RichardSmithHomeLoans.com, or call my cell phone, 423-280-0345.


Thank you for visiting. This is the professional blog for

Richard Smith

Conventional, FHA, FHA 203k, HUD $100 down purchases, VA, Jumbo VA, Rural Development, Jumbo, FannieMae Homepath, Home Equity Line of Credit (HELOC).
Lending in Chattanooga, Tennessee and Georgia for over 20 years.

Cell phone: 423-280-0345 Email: Richard@HomeLoansChattanooga.com

Visit my website: www.RichardSmithHomeLoans.com To start your approval Begin Here

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Thank you for visiting. This is the professional blog for

Richard Smith
NMLS# 184479 TN# 104002 GA# 28928 

Conventional, FHA, FHA 203k, HUD $100 down purchases, VA, Jumbo VA, Rural Development, Jumbo, FannieMae Homepath, Home Equity Line of Credit (HELOC).
Lending in Chattanooga, Tennessee and Georgia for over 20 years.

Sierra Pacific Mortgage

Cell phone: 423-280-0345 Email: Richard.Smith@SPM1.com

Visit my website to inquiry about a home loan.

Read my most recent articles in Scotsman Guide.

This blog represents the opinions of Richard Smith. The posts and comments written on the blog do not represent the opinions or positions of Sierra Pacific Mortgage. 

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Show All Comments
Rainmaker
713,359
Chuck Carstensen
Minnesota Real Estate Expert
RE/MAX Results

I think it will still be a good loan but clearly motivation to get closed sooner.

March 03, 2011 08:17 AM
Rainmaker
891,596
Michael Setunsky
Your Commercial Real Estate Link to Northern VA
Michael's Commercial LLC

Richard, its still a good loan program for those who qualify.

March 03, 2011 08:24 AM
Rainmaker
208,014
Richard Smith
FHA VA Rural Development in TN GA

Chuck and Micheal,

Still a good program, even with the 3.5% now and even with the .3% annual then. I do think however that this change should be viewed in light of the Administrations announced plans to pull government support from home ownership. Or maybe my interpretation of the President's white paper is inaccurate. Commissioner Stevens mentioned the capital reserve as the reason for the increase. This RD change though does not speak of restoring losses. It is a change based on a change in housing policy. And frankly, I think the coming FHA MI increase is motivated by that change in housing policy.

My thoughts anyway.

Thanks,

Richard

March 03, 2011 08:32 AM
Rainmaker
1,085,155
Bryant Tutas
Broker/REALTOR, Tutas Towne Realty, Inc
Bryant Tutas-Tutas Towne Realty, Inc

Thanks for sharing this Richard. The Rural Housing Loan is a great product for buyers that qualify. back before the boom it was the loan of choice in my area. It's now starting to make a comeback.

March 03, 2011 08:33 AM
Rainer
47,685
Jim Courtney
GRI, AHWD
OklaHomes Realty, Claremore Oklahoma

Another reason for my being a part of AR. I bet there are others in our office who do not know this as of yet. I do quite a few rural development transactions (went pending on one yesterday, and showing another today). I will be sure to share this information with my fellow agents. Thanks! :)

March 03, 2011 08:37 AM
Rainmaker
301,241
Margaret C. Taylor
St Marys/Calvert/Charles MD Real Estate Agent
Century 21 New Millennium MD

Thanks for this information Richard Buyers use this loan choice often in St Mary's MD  Margaret C.

March 03, 2011 08:58 AM
Rainer
100,884
Keith Vermilyea
Silvercreek Realty Group

Richard ~ thanks for passing on this important info, I think the RD program is still a good one even with the additional fee.  I like the attempt to make the program less tax payer supported, that's the right direction to be going in these days. 

March 03, 2011 09:06 AM
Rainmaker
208,014
Richard Smith
FHA VA Rural Development in TN GA

Jim, this is pretty new news. I think the announcement was overnight. Bryant and Margaret Rural Development has been a popular program in Chattanooga and TN and GA all through the last 2 decades.

I wonder, has anyone seen the delinquency figures for the RD program.

Are there coming changes to VA? Maybe VA is off the table for proposed changes.

Thanks,

Richard

March 03, 2011 09:09 AM
Anonymous #9
Anonymous
Anonymous

Subsidy neutral - Hooray!

March 03, 2011 09:15 AM
Rainmaker
558,659
Chris Olsen
Broker Owner Cleveland Ohio Real Estate
Olsen Ziegler Realty

Hi Richard -- Is the 2% upfront fee a new feature or ???

March 03, 2011 09:28 AM
Rainmaker
208,014
Richard Smith
FHA VA Rural Development in TN GA

Chris, The upfront guaranteed fee has been different amounts. It is currently 3.5%. In October it will be pushed back to 2%, according to the announcement.

March 03, 2011 09:35 AM
Rainmaker
172,255
Randy Landis
Retirement Consultant
Jimmy Langley Realty

Undoubtedly will affect the qualifying loan amount if it becomes a payment based charge. Looks like home affordability takes another hit.

March 03, 2011 09:51 AM
Rainmaker
645,151
Team Honeycutt
Allen Tate

Thanks for the information.  I haven't used this one but sounds like a good one still.

March 03, 2011 11:11 AM
Rainer
122,248
Cory Barbee
Broker (760) 563-4022

Nice information.. I have not heard of this loan program in my area but I will look into it...

March 03, 2011 12:12 PM
Rainmaker
216,453
Chris Sloan
Tooele Utah Real Estate
Group 1 Real Estate

Still a great program, but I can't help be concerned that this will just be the start of screwing with it, as government has a tendency to do. This program has been our bread and butter here in rural Utah for years. This may actually put some other programs back into play, which isn't always a bad thing. Thanks for the post

March 03, 2011 01:46 PM
Ambassador
1,227,260
Erica Ramus
MRE, Schuylkill County PA Real Estate
Erica Ramus - Ramus Realty Group - Pottsville, PA

Here in my part of Pennsylvania we do a lot of loans like this, so this will affect us. Thanks.

March 03, 2011 06:26 PM
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August 12, 2012 07:51 AM
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Rainmaker
208,014

Richard Smith

FHA VA Rural Development in TN GA
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