Pennsylvania USDA Mortgage: How the 10/01/2012 Annual Fee Increase Affects You

Another change has occurred to Pennsylvania USDA Mortgages

Last fall the USDA began including an annual fee with their mortgages.  This fee is included with the monthly payment and is intended to help keep the USDA Mortgage Program financially solvent. USDA has now announced that there will be an increase in this annual fee for new loans that receive a Conditional Commitment on or after October 1, 2012.

Conditional Commitment?  What’s that?

The USDA issues a Conditional Commitment when they are ready to Guarantee a USDA loan submitted to them by a USDA lender.  The USDA lender will only submit this loan to the USDA for Conditional Commitment when all conditions are cleared and the loan is fully approved.  That means all the inspections are done, the appraisal is done, and all income and any other issues have been cleared.   A loan submitted today has a chance of receiving a Conditional Commitment prior October 1st but the clock certainly is ticking.  Borrowers who already have a USDA mortgage in place will not be subject to this change, this is only for new applicants.

How much will this increase to the Annual Fee affect my payment in actual dollars?

Below is a chart comparing the previous Annual Fee of .30 with the new Annual Fee of .40 expressed in a monthly payment.  The USDA Annual Fee is always collected in the form of a monthly amount.

If the Annual Fee is collected monthly, why don’t they just call it the Monthly Fee?

That would make more sense. 

Ok, I can see the Annual Fee did get more expensive.   Is the USDA still a good deal?

Yes.  USDA Mortgages still offer 100% Financing and the Annual Fee is much less when compared to the Monthly Mortgage Insurance required by FHA.  FHA Mortgages also require a 3.5% down payment.

How about the upfront fee that the USDA charges, have there been any changes to this?

For purchases, the upfront Guarantee Fee that the USDA collects has remained at 2% of the loan amount.  For refinances, the USDA has also the Guarantee Fee at 2% of the loan amount.  This does represent an increase from the previous 1.5% level for USDA refinances.  The USDA does allow the Guarantee Fee to be financed into the loan amount amount for both USDA purchases and USDA refinances.

When it comes to buying a home with the least amount of money out of pocket possible and the cheapest monthly payment, USDA Mortgages are still the way to go.  Remember, USDA Mortgages allow the seller to cover the closing costs or the buyer can actually finance the closing costs.  Either way, this results in a buyer typically being able to leave their check book at home when it comes time to attend the closing.