USDA Rural Development Guarantee Fee
USDA Rural Development Guarantee Fee, loans offer awesome benefits: no mortgage insurance, 100% loans with 102% financing, unlimited seller contributions, and many others. USDA Rural Development loans may only be applied to eligible properties, but many are available near urban communities. But the USDA Rural Development Guarantee Fee and annual fee can be confusing, so here is a summary of how it works and some guidance for calculating the complete Guarantee Fee and subsequent Annual Fee. For an USDA Rural Development Fee online calculator, click here.
No Mortgage Insurance
The USDA Rural Development Housing program does not require mortgage insurance, but a two percent guarantee fee is required on all loans. This two percent guarantee fee is similar to the Veterans Administration’s (VA) funding fee, and may be financed in to the total loan amount. This allows for a maximum loan amount of 100% of the appraised value of the property, plus the 2% Guarantee Fee, for a final loan amount of 102% Loan to Value.
100% Home Loans with 102% Financing
The USDA Rural Housing Guarantee Fee can be financed into the loan, even if the loan is already a 100% financed loan.
When calculating the Guarantee Fee and Total Loan Amount for USDA Rural Housing loans, the following calculations must be completed first:
- Add closing costs and prepaid items (homeowner’s insurance, property tax escrow’s, etc.) to the sales price or payoff. Remember, this amount cannot exceed the appraisal value of the subject property.
- You will then subtract any costs paid by the borrower, such as earnest money (a sales contract deposit) and seller contributions toward the buyers closing costs.
- Next, divide the total by ninety-eight percent
- This will equal the Total Loan Amount.
- Finally, multiply the Total Loan Amount by two percent, and this will equal the Guarantee Fee.
How to Calculate the USDA Rural Development Guarantee Fee
Let’s look at an example: Borrower wants to finance a property with USDA Rural Housing Financing. The purchase price of the property is $100,000, and the appraised value is $112,000. Closing costs are $5,000 and Prepaid costs are $3000.
- We will add the purchase price of $100,000, the Closing costs of $5,000 and the Prepaid items of $3,000, which equals $108,000
- We will then subtract any seller contributions, gifts or borrower paid items from this total.
- Next we will divide the total by .98, and this will equal the Total Loan Amount of $110,204, including the Guarantee Fee.
If you subtract the base loan amount and closing costs from the $110,204, this will equal the Guarantee fee of $2,204. To double check, take the Loan Amount and multiply it by .020 to get the Guarantee Fee.
In addition to the 2% Guarantee Fee, which is either financed into the loan or paid upfont at closing, an annual fee of 0.4% of the unpaid balance (UPB) is charged every year for the life of the loan.
Copyright 2015 John Regur All Rights Reserved – Originally Posted at: Tulsa Oklahoma Mortgages – John Regur