USDA Upfront Guarantee Fee - Change Update

Date: October 1, 2011

Effective October 1, 2011 the USDA Guarantee Loan Program will decrease the upfront fee charged on all USDA Purchase transactions from 3.50% to 2.00%. The upfront fee on USDA Refinance transactions will decrease from 3.50% to 1.50%. In addition, the USDA Guarantee Loan program will start to charge an Annual Fee of .3% of the outstanding loan amount that will be paid for the life of the loan.

One of the most frequent questions that come up when discussing the USDA Loan program is the 2.00% fee that appears on the good faith estimate. USDA Loan is a "budget neutral" loan program offered through the U.S. Department of Agriculture. This means that the loan doesn't rely on U.S. tax payers for funding or assistance. Instead the program is self-funding through the 2.00% "Guarantee Fee" charged at the settlement table and the Annual Fee, which is paid monthly based on the pro-rated portion of the Annual Fee. This is a straight pass through fee from the lender to the U.S. Department of Agriculture.

The 2.00% Guarantee Fee is calculated at a flat 2.00% of the loan amount when being paid upfront at settlement. If included or financed into the new loan then the calculation is based on the following formula: Loan Amount/.98 – Loan Amount, which is slightly higher than a straight 2.00% calculation.

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