Update: As of October 1 2014, the USDA is increasing their annual fee for both home purchase and refinancing loans from 0.4% to 0.5%. However, the upfront guarantee fee for the home loan, currently set at 2%, will remain as is. If you currently have a USDA loan in process, make sure that you have a conditional approval from your local Rural Development office by September 30 2014 to ensure that you are still eligible for the lower 0.4% fee.
Additionally, the state of Florida has indicated that they now require re-disclosure on all pending USDA loans due to their backlog of loans. Keep in mind that, due to their own backlog, other states may take longer than expected to underwrite USDA loans.
Lastly, the USDA will be updating the areas that are eligible for USDA. Specifically, they will be eliminating those metropolitan areas and cities that have populations greater than 35,000.
All of these changes are set to take effect on October 1 2014. If you have any questions, contact your local mortgage lender for further details.
What is a USDA Loan?
The USDA helps those families with lower incomes to purchase, repair, renovate, or relocate a single or multi-family home in certain rural areas, as designated by the USDA. However, you need to be aware of important changes that could affect your ability to get a home loan. Specifically, effective October 1 2014, the USDA is changing the USDA zone loan areas that are within the guidelines for lower-income qualifications.
In essence, the USDA property eligibility areas are becoming more restricted, particularly in the Northeast. Some areas that were previously in eligible USDA loan zones may now be excluded. For example, parts of Rhode Island will be excluded from these USDA loans. You can access the USDA site to view the future affected areas. While these changes seem straightforward to those who will apply for USDA loans after the effective date of October 1 2014, what happens to those who are in the process of obtaining a mortgage?
If you haven’t been pre-approved for a mortgage, then it’s highly unlikely you’ll be able to receive the guarantee by the October 1, 2014 deadline since the USDA is experiencing wait times of 30+ days or more.
What happens if you are no longer eligible for a USDA rural area loan due to these changes? There are ways that some people can still take advantage of USDA financing. For example, if you have ever served in the military, either currently or previously, you can get a VA loan which allows for 100% financing for no monthly PMI along – without being subject to geographic or income restrictions. Up to 25% of Americans may be eligible this way. You can learn more by downloading our free VA Loan Fact Sheet.
Please note that any and all USDA loans, regardless of their geographic eligibility, are still subject to the terms and standards as indicated by the USDA.
Even with a lower-income, home ownership can still be within reach. If you want to purchase a home in a rural area, you need to make sure that you aware of the upcoming USDA changes so that your dream of owning a home can become a reality. For more information about these changes, to confirm that your loan falls within the new geographic regions, or to verify that your current pre-approval still qualifies, contact your mortgage lender for complete details or click here to find out what you qualify for now.