Cool Tools News Spool

Tag: USDA

  • USDA up-front fee increasing; reason unclear

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    USDA is raising its guarantee fee for the Rural Development home loan program on Oct 1st. The Rural Development program is one of the few no-money-down loan programs. It’s only available in areas USDA considers rural in nature, but that definition includes a lot of exurbs of major TX cities.

    The guarantee fee is up-front mortgage insurance due at loan closing. Most borrowers choose to roll the fee into the loan amount rather than pay it at closing.

    The fee is rising from 2% to 2.75% of the initial loan amount. On a $150k home, that will raise the monthly payment by about $5.50 at today’s interest rate.

    The reason for the change is puzzling. USDA claims the increase is to cover old loan losses. However, we’ve been told USDA has a low default rate, and in 2011 it claimed loan losses were declining. USDA recently testified to Congress that the guaranteed loan program has a negative subsidy, meaning that it’s charging more money than it needs to cover losses. Thus, it sounds like the increase really is just another way the administration has found to raise money for the general fund, and this time the tax falls on rural homebuyers.

    USDA is not changing its monthly mortgage insurance rate, called the annual fee, which remains 0.5% of the loan balance.

    Please note that USDA will apply the change based on the date it commits to the loan, not the date the borrower applies. In order to beat the change, a homebuyer really needs to find a home this month as it generally takes about 30 days from contract signing to USDA loan approval.

  • Qualifying for mortgage easier with new student loan guidelines

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    Given all the media coverage about student loan debt keeping millennials out of the home purchase market, I thought it would be good to review some updated loan guidelines from Fannie Mae and USDA concerning this type of debt.

    One important point to remember is that both loan programs treat deferred student loans the same as loans in active repayment, meaning we have to include the loans in our debt calculations.

    Also, the guidelines recognize that income-based and graduated repayment plans, which have become popular, may not provide an accurate estimate of the loan’s impact on the borrower’s finances because the payment may rise. As a result, the guidelines require that we use a fixed percentage of the loan balance in our debt calculations.

    On a very positive note, the updated guidelines cut that fixed percentage from 2% to 1% of the loan balance. This is a big deal because it reduces the impact of student loan debt by 50%. Further, if the actual payment is less than the 1% calculation, the guidelines state that we can use that payment, but only if it fully amortizes the loan. If the actual payment is greater than 1%, we must use the actual payment.

    While USDA already has implemented the new guidelines, the changes won’t apply to Fannie loans until 4/1.

  • New USDA maps effective Feb 2nd

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The long delayed new USDA maps go into effect on Feb 2. We talked about these news maps in my Sep 8th blog, which you can find in the archives. The main changes are around the Austin and DFW metros and amount the removal of some exurbs from eligibility. Remember that USDA bases eligibility on the date it receives a complete loan file. For most lenders, this will be a couple weeks after loan application. So, homebuyers need to act soon to beat the changes.

    USDA also implemented other significant changes to its rural development program at the end of last year. Some of the highlights are:

    – USDA increased the program’s monthly mortgage insurance rate, called the annual fee, from 0.4% to 0.5% of the loan’s balance. Even with the increase, the RD loan program still compares very favorably to FHA. Both should have roughly the same interest rate, but USDA requires no down payment and has lower monthly MI.

    – If a homebuyer can document that his current home no longer meets his family’s needs, he doesn’t have to sell his existing home as long as it isn’t financed with a USDA loan. Unfortunately, the homebuyer has to qualify with both house payments as USDA will not allow rental-income credit.

    – USDA will allow lenders to escrow at closing for minor repairs. This could increase the number of homes eligible for USDA financing. Check with the lender before you execute a contract as USDA doesn’t define “minor repairs” and some lenders may not be set up to handle escrowed funds.

    – Finally, the RD program now can be used to purchase homes with pools. However, the appraiser will be instructed not to attribute any value to the pool. Thus, unless the homebuyer has the funds to pay the difference between the appraised value and the contract price, it still may be difficult to use an USDA loan in these situations.

  • New USDA mortgage maps could take effect in Dec

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    We talked a while back about the new USDA guaranteed housing maps and how the changes could impact suburban areas in Texas. Implementation of the new maps was delayed when Congress funded the government using a continuing resolution back in Sep. The continuing resolution expires Dec 11th, and the expiration ends the delay for the new maps.

    Or does it? Some folks in the real estate industry have suggested given the results of the mid-term elections that Congress will pass another short term continuing resolution and leave funding the government to the next Congress when Republicans will control both chambers. If that happens, these folks expect Congress to extend the current maps yet again.

    However, I think that’s far from certain. Recent media reports indicate Republican leaders are considering agreeing to fund the government for the remainder of the fiscal year rather than risk a game of fiscal chicken with the president that could result in a government shutdown.

    This issue is particularly urgent given that any USDA applications that haven’t been approved by the end of the month will have to start the application process again. If your customer is using a USDA loan and expects to close in the next month, pay attention to the loan status. If Congress doesn’t extend the maps, you could find USDA pulling the eligibility map out from under your contract.

    I’ve included a link to the USDA eligibility Web site at the end of my blog. From it, you can view both the existing and new property eligibility maps.

    USDA Eligibility Web site

  • USDA will stop accepting mortgage applications

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    We’ve talked in the past about the pending changes to the USDA rural development mortgage program. In order to implement the changes in its computer system, USDA has decided not to accept applications during the last week of Nov. The reason stems from the large backlog of applications in many states. USDA doesn’t feel it can maintain two processing systems, so it will process the applications it receives by the 21st under the old system. It will process applications it receives starting on Dec 1st using the new system. During the last week of Nov, USDA will play catch up.

    Given that the outage period is during Thanksgiving week, I hope the impact will be minimal, except on the USDA employees who get to work overtime. However, there is one area of concern. USDA acknowledged that if it is unable to work through the backlog of applications, any that are not processed will be returned to the lenders unapproved. For these applications, borrowers would have to sign new documents, and lenders would have to underwrite the applications again before submitting them to USDA for approval. This potentially could add another week or two to the loan processing time.

    The takeaway from this is that if you have a customer using a USDA loan, and you want to close in early Dec, encourage all parties to act with urgency. You want USDA to receive that loan package well before the Nov 21st cutoff date, if possible.

  • USDA RD changes coming Oct 1st

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    USDA is making some significant changes to its rural development (RD) mortgage program starting Oct 1st. If you don’t know the RD program, it’s worth learning more. The program requires no down payment and has much lower monthly mortgage insurance than FHA.

    The first change concerns that mortgage insurance. For all loan commitments after 9/30, USDA is increasing its monthly rate from 0.4% to 0.5%. That still makes it a bargain compared to FHA. For a $150k loan, the difference in total housing payment between USDA and FHA is more than $100. In fact, a homebuyer could get a $170k home, $20k more home, for the about same housing payment.

    But before you load your customer in the car to look at USDA-eligible properties, know that for homebuyers with good credit, FHA allows higher debt ratios than USDA. I’m hearing USDA will not accept a debt ratio above 48% whereas I’ve seen FHA approvals as high as 56%. On net, your customer may be able to qualify for more home with an FHA mortgage, but that comes with a higher housing payment.

    USDA bases the MI rate on the date it commits to the loan, not the date the homebuyer applies. If you have customers considering a USDA loan, they need to apply soon to beat the deadline.

    The second change concerns USDA property eligibility. The RD program targets “rural” areas, but rural includes many of exurbs of the major TX cities. The new maps carve off a few of those exurbs. The USDA eligibility Web site, which I linked at the end of my blog, lets you compare the new and old maps. The main changes I noticed were the expansion of ineligible areas in Pflugerville, Round Rock, and San Marcos in the Austin area and Denton and McKinney in the DFW areas. In addition, the ineligible area on the west side of Ft. Worth expanded significantly. San Antonio and Houston escaped mostly unscathed.

    USDA bases property eligibility on the date it receives the loan file. For most lenders, this will be a couple weeks after loan application. So, again, homebuyers need to act soon to beat the changes.

    USDA property eligibility maps.

  • Changes for the USDA mortgage program

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

    by G. Steven Bray

    The USDA RD loan is a great option for homebuyers in more rural locations. The loan requires no down payment and has much lower monthly mortgage insurance than an FHA loan.

    USDA is implementing some changes this fall that may affect your homebuyers’ ability to use the program. The changes take effect Dec 1st.

    – First, USDA will change some of its property guidelines.
    — The 30% limit on the ratio of land to total property value will be removed as will the restriction against in-ground pools. I’ve seen no guidance yet on how USDA intends to handle rural properties with high land values.
    — Guidelines concerning outbuildings have been clarified. Outbuildings that could be used to produce agricultural income, such as a barn, cannot be included in the property value used to determine the loan amount. This guideline will apply whether or not the property actually is producing income.
    — Private wells and water systems generally will be considered acceptable, but they may require inspection or documentation that they meet health standards.

    – Second, USDA will change some of its credit standards.
    — At least one applicant must have a valid credit score, and the credit report must show at least 3 trade lines with at least 12 months of history. There is no indication at this time that USDA will allow alternative credit scoring, such as through the use of rent and utility account payments.
    — Additionally, USDA has it indicated that for student loans, it will use 1% of the outstanding balance if the loan doesn’t have a fixed monthly payment. This could affect homebuyers that have used graduated or income-based payment plans to lower their student loan payments.

    – Finally, USDA will limit seller contributions to 6% of the purchase price.

    USDA is also changing its guarantee fee and property eligibility maps. We’ll cover those changes next time.

  • Minimum credit score drops for FHA loan

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • USDA’s new income limits

    Click here for a link to the USDA table that lists income limits by county.

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.

  • USDA RD no money down loan available in some suburban areas

    Click here for a link to the USDA eligibility map.

    For more information, please contact me at (512) 261-1542 or steve@LoneStarLending.com.