Tag Archives: RD

Hell Freezes Over!

Hell Freezes Over!

That’s got to be why the fees on a widely-used type of mortgage will be FALLING as of October 1, 2016.

The USDA Rural Development (RD) Single Family Housing program just announced that the cost of their version of mortgage insurance will be significantly lowered for fiscal year 2017! This is the period starting October 1, 2016 and ending September 30, 2017.

Commonly known on other loans as PMI, MI, or MIP, these fees are called guarantee fees on RD loans. It’s the same thing, by a different name – mortgage insurance that YOU pay, which covers the lender against any loss they might face should they foreclose on the house and have to sell it for less than what they are owed. Having to pay for something that benefits only the lender is frustrating, but it’s a necessary evil. Without it, lenders wouldn’t write mortgages.

On an RD loan, there are 2 parts to their guarantee fees: The first is an upfront, lump sum fee which you pay at closing. Currently it is 2.75% of the loan amount. The 2nd part is a recurring fee based on an annual 0.5% of the outstanding loan balance, which is broken down and paid monthly as part of your note. While it falls slightly as your principal goes down, this monthly fee stays in effect for the life of your loan.

RD has been raising their guarantee fees over the last few years (see our previous article) which is why we were utterly amazed when we were notified about the upcoming reduction. It will definitely benefit buyers who finance with an RD loan, thus helping sellers as well. Since the loan fees will be less, houses will be more affordable.

As an example: Currently, to buy and finance a $150,000 house with an RD loan would require a 2.75% upfront guarantee fee, which is $4,125.00. The annual guarantee fee of 0.5% is $750.00 per year, which works out to an extra $62.50 on the monthly note.

As of October 1, 2016 the upfront rate drops to only 1.0%, and the annual fee to 0.35%. On our $150,000 example house, this would make the upfront fee $1,500.00 which is a difference of $2,625.00. The annual fee would drop to $525.00, or $43.75 per month, a savings of $18.75 off of the note.

Regardless of the price of a home, these reductions are substantial, and will make a significant difference to many people. We salute the RD program for enacting these reductions.

IMPORTANT NOTES:

  1. If you have an existing RD loan, these changes DO NOT affect you! Existing loans are locked in at the rates and terms in effect when the loan was originated.
  2. The new, lower rates only apply to loans which receive their official commitment from RD on or after October 1, 2016. If you’re buying a house prior to that date, and the RD commitment is issued anytime from now through September 30, 2016, the current rates will apply.

Let us know if you have any questions, or need help buying or selling!

Changes coming in October 2015

Changes coming in October 2015

In just a few weeks, 2 significant changes are being implemented which will affect residential real estate transactions.

These changes are:

1. On October 1, 2015, the upfront guarantee fee for Rural Development (RD) loans is increasing. Currently, RD loans require that the buyer pay a 2.0% upfront guarantee fee. After October 1, the fee will increase to 2.75%. To illustrate the difference this will make, let’s use a $150,000 loan as an example. Currently, the fee would be $3,000. At the new rate, it will be higher by $1,125.00 for a total of $4,125.00. This increase means buyers will have to bring more money to closing, or finance it into their loan, or negotiate it from the seller.

As long as RD has issued their commitment (in other words, has approved the file and sent it back to the lender to finish the pre-closing process) by September 30, 2015, the existing rate will still apply. As we’ll discuss in another article, RD is and has been taking about 32 days to issue their commitment after receiving a file from a lender. If this turnaround time continues, loans will have to be sent to RD by August 29, 2015 if they are to obtain the RD commitment prior to the fee increase.

2. The government has mandated that effective October 3, 2015, new forms and procedures must be used on ALL closings. According to title companies and others, it will take longer to get to closing, and other delays as well as higher closing costs may result. This was supposed to become effective on August 1, but concerns from the real estate industry, as well as errors which were found in the new forms and procedures, prompted the government to push it back to October. In our opinion, this will not provide any benefit to buyers and sellers whatsoever. Instead, like almost everything the government does when it meddles in private markets, the only result will be more paperwork, more delay, and more costs.

These changes are not minor, and will make the process of buying or selling a home take longer and cost more.

If you are thinking about buying or selling, there is still enough of a window left to avoid these upcoming issues. However, you must act fast in order to do so.

If you have any questions about either of these impending changes, post them below and we’ll get you the answers fast.