USDA Rural Development Mortgage Guidelines

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For Sale By Owner Advantage

Guaranteed Funding Fee

Another benefit to this mortgage is the fact that it does not require mortgage insurance.  

We all know how costly mortgage insurance is and how it can increase your payments.  In addition to the cost of MIP, it is harder to get in today's market because the companies providing it  have changed their guidelines.  Guess what, on conventional loans, no MIP, ... no loan.

The mortgage insurance for this program is replace by a 3.5% funding fee.  That is ... 3.5% of the loan amount.  A special note here:  Effective October 1st, 2011 this fee goes to 2% with an additional Annual fee of .3% of the average outstanding principle balance. (AN 4551, AN 4599)  

The annual fee will be charged monthly to the buyer and included in the escrow payment.  The annual fee will be paid to the Government by the lender at the end of each year.

The best part is that the Funding Fee may be financed into the loan.  Yes, you got it.  That makes the maximum LTV of this mortgage 103.5%, or 102% after Oct. 2011.

I really can't tell you how unusual this is in today's real estate market.  If you take this benefit plus the fact there is no maximum limit for seller concession, ... well, it is the FSBO's dream loan that will help sell his home in no time if used in the advertising.  The only issue is if the home is located in an area that qualifies.

A short note is needed about the seller concessions.  RD does not place a limit on the amount but the lender funding the loan may.  Make sure the lender you are using at least agrees to a 6% maximum.  Most do.

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