Last year, the United States Department of Agriculture (USDA) lowered upfront and monthly fees for its home loan program. This mortgage type is extremely popular with first-time homebuyers as it offers 100 percent financing and requires zero-down payment. It also comes with cheaper monthly mortgage insurance fees than do FHA loans and applicants with credits scores down to 640 are eligible.
“The USDA fee reduction announcement is in stark contrast to the agency’s history of increasing costs. The fact that USDA is now lowering their fees is a testament to the health of the housing and mortgage markets,” says Ed Heck, President of First Funding, Inc. “Every year, home buyers opt for the more expensive FHA loan program, even when they are buying in USDA-eligible areas. Consumers often haven’t heard about the program. Unlike other lenders just offering FHA loans, First Funding also offers USDA loans and eligible home buyers should weigh the benefits of a USDA loan.”
“Strong government backing allows lenders to approve mortgages that would not qualify under guidelines for other programs. By the end of the year, the USDA loan will become one of the most affordable home loans available, second only to the veteran-exclusive VA home loan. They come with lower mortgage insurance premiums than do FHA mortgage loans,” Heck added. “As the housing market recovers, the USDA program costs less to operate and sustain. The savings are passed on to USDA buyers. Typically, USDA re-examines financials of previous fee changes then raises, holds, or reduces fees accordingly. If loans in USDA’s portfolio perform well, another drop could come later in the year.”
The USDA mortgage requires two types of fees: an upfront guarantee fee (USDA’s loan backing that allows lenders to issue loans according to its guidelines) and a monthly fee. The upfront guarantee fee stands at 2.75 percent of the loan amount, and the annual fee is currently 0.50 percent, paid in twelve equal installments and included in each mortgage payment.
“Home buyers can seldom increase their income, but they can reduce payments by choosing a USDA loan once these cost reductions take effect,” noted Heck. “This could mean the difference between an approval and a denial for some USDA home buyers. To qualify, they must meet debt-to-income requirements. Their income must be enough to sustain future monthly payments on credit accounts, including their home loan.”
This is an advantageous arrangement, but it adds to the loan balance. At the current upfront fee of 2.75 percent, a USDA loan will add more than $6,800 in loan amount on a $250,000 home purchase. The upfront guarantee fee reduction will significantly reduce the amount added to the loan. This translates a lower debt obligation, and lower payments.
These lower loan balances also translate into reduced monthly payments, Heck points out. “A USDA-issued commitment happens near the end of the home buying process. Most home purchases take between 30 and 90 days to complete. This includes getting pre-approved for your mortgage, finding a home, making an offer, and closing the transaction. In today’s hot market, just finding a home could take weeks or months.”
USDA loan eligibility is based largely on geographical location of the home. The agency publishes maps that detail areas in which applicants can buy a house with a USDA loan. A full 97% of U.S. land mass is eligible for the USDA loan program.
Besides this requirement, an applicant must:
- Meet income-eligibility
- Occupy the dwelling as their primary residence
- Be a U.S. citizen, foreign national, or qualified alien
- Purchase a safe, livable property
Heck says eligible home buyers should weigh the benefits of a USDA loan. “Choosing USDA will save the 3.5% down payment that FHA requires.”
Edward G. Heck values the opportunities First Funding, Inc. creates to make day-to-day business decisions independently, with the benefits of economies of scale only an independent broker can offer to its clients. Heck founded the company on the cooperative theory along with honesty, integrity and full disclosure, which are the foundations of First Funding, Inc.
As President and CEO of First Funding Inc., Heck oversees and directs all aspects of business activities throughout the entire company. His initial footprint into the mortgage market, dates back to 1990 and 1997 marked the opening of First Funding, Inc.
As part of his leadership role, heck is spearheading the company’s expansion in Maryland organically through new talent acquisition and the development of key growth markets.
Additionally, Heck is a producing originator. He loves helping people of this great nation achieve the dream of homeownership. He brings over 28 years of mortgage lending expertise to the table with attention to exceptional customer service.
Prior to starting First Funding, Heck worked at several mortgage companies. He was the top producing loan officer, holding positions as branch manager and vice president. Heck is a member of the National Mortgage Brokers Association, he grew up in Baltimore, Maryland and now lives in Davidsonville, Maryland. Heck enjoys hiking, kayaking, biking, playing football and softball. He is also an avid Ravens, Capitals & Orioles sports fan!