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Fees on USDA $0 Down Loans Decreasing on October 1st!

Shawn Von Talge



09-09-2016

USDA fees decrease October 1As wa previously discussed in this article back in May, substantial decreases are coming to USDA’s fees on its $0 down mortgage program. The new, lower fees will go into effect beginning with all conditional loan commitments issued on October 1st of this year.

As you also may recall from the previous article, the fees USDA charges on its $0 down loan program consist of a one-time upfront “guarantee” fee and a monthly “servicing” fee.

Under the new fee structure the upfront guarantee fee will drop from 2.75% to 1.00% of the loan amount and the monthly servicing fee will decrease from 0.5% to 0.35% of the average scheduled unpaid principle balance on the loan.

So what do these fee decreases mean for the typical homebuyer? To answer this question let’s see what the USDA fees would currently be on a $0 down $135,000 home purchase versus what they’ll be when the lower rates go into effect on October 1st. Under the current USDA fee structure the upfront guarantee fee on a $135k purchase would be $3,817.48 and the monthly servicing fee would be $57.34 during the first year of repayment. If we utilize 3.500% as the interest rate on a 30-year fixed rate USDA loan, the combined principal, interest, and servicing fee payment comes out to $680.69 per month.

USDA loan

Now let’s see what happens if we apply the new USDA fee structure to the same $135k home purchase scenario as described above. The results speak for themselves: the upfront guarantee fee drops to $1,363.63, which is a savings of $2,454 over the current fee. The servicing fee would go down to $39.43 per month during the first year of repayment, which equates to a savings of roughly $215 when compared to what the current servicing fee would total up to over the same time period.

In addition to the monthly savings brought about by the lower USDA fee structure, it also results in more purchasing power for the homebuyer. To explain, as mentioned in the example above, when USDA’s current fee structure is applied to a $135k home purchase the combined principle, interest, and servicing fee payment comes out to $680.69 per month. With the new USDA fee structure, a homebuyer could achieve this same monthly payment with a purchase price of $141,000. In other words, the homebuyer in our example is due to gain $6,000 in purchasing power when the lower USDA fees go into effect on October 1st.

Thanks as always for reading!

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