USDA Loan Program Upfront Fee Reduction

On October 1st 2016 the USDA Upfront Fee decreases from 2.75% to 1.00%. This means it will costs less to take advantage of this mortgage program that allows 100% financing for approved households in eligible rural areas.

This government sponsored housing guaranteed program allows for no money down (0% down payment) and can be used for new or existing residential properties, repairs and rehabilitation with the associated of a purchase of an existing dwelling as well as refinancing of eligible loans.

The upfront fee is the initial cost that is required to participate in the program and the reduction in fees will save homebuyers 63% in closing costs. For example, the average listing price of home in the U.S. in 2016 is $239,900. With the new fee of 1.00%, a one-time cost of $2,399 is paid as part of the program. Any USDA loans closed before October 1st will have to pay $6,597. This reduction of fee to 1% will save the homebuyer $4,198 or 63%.

Since this loan program is to encourage development in rural areas, you will not be able to participate in this program and buy a condo in Miami. The government has unique rules on how they define what is rural and what is not.

I did an analysis in our RatePlug database of active properties of over 1.5 million listings and I found 393,606 properties are USDA eligible based on USDA Eligibility Rules. This represents 26% of the properties and represents a large mix of rural and urban area across different regions of the United States.

Some areas are more concentrated than others. For example: The Washington DC area and its surrounding suburbs have about 31% of the properties eligible for this program. The Miami area has only 0.8% eligible properties.

Applicants must contact an approved lender in order to take advantage of this program that allows homebuyers a very low cost to homeownership

Mike Babincak, CTO