Effective 10/01/12, the USDA will be increasing their Annual Fee
In the fall of 2011, the USDA started including an Annual Fee with all of their mortgages. This Annual Fee is the USDA’s version of Mortgage Insurance. Mortgage Insurance covers the loan in case of default. Much like mortgage insurance, the USDA collects this fee to help keep their 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.
A “Conditional Commitment” is what the USDA calls their Approval. The USDA issues a Conditional Commitment when they are ready to back up or Guarantee a USDA loan submitted to them by a USDA lender. In turn, the USDA lender will only submit this loan to the USDA for Conditional Commitment when all conditions have been cleared and the loan is fully approved. That means all of the inspections are done, the appraisal is done, and all income documents have been cleared and any other issues as well. A loan submitted today has a chance of receiving a Conditional Commitment prior October 1st but the clock certainly is ticking. Current and active applications are grandfathered in and will not be subjected to this increased Annual Fee if the closing does not occur prior to October 1.
How much will this increase to the USDA Mortgage Annual Fee affect my payment in actual dollars?
The current Annual Fee is .30%, the new Annual Fee will be .40% This means that based on a $100,000 loan amount this increase represents an increase of about $8 per month. The USDA Annual Fee is always collected in the form of a monthly amount that is added to the monthly mortgage payment. You do not have to pay this separately.
Current Annual Fee: .30%
Loan Amount $100,000
100,000 x .30% = $300 per year in Annual Fee amount
$300 / 12 months = $25 per month in Annual Fee included in the mortgage payment
New Annual Fee: .40%
Loan Amount $100,000
100,000 x .40% = $400 per year in Annual Fee amount
$400 / 12 months = $33.33 per month in Annual Fee included in the mortgage payment
Difference $8.33 per month
Not a huge monthly difference but we will keep our eye on this to see if there are anymore changes.