FHA, VA and USDA Loan Changes in October

The new fiscal year is looming for the federal government and changes are being made to the primary government mortgage loan programs. VA, FHA and USDA mortgage programs will see changes and will will be effective October 1, 2011.

There's a favorable change for VA loans. The funding fee for these mortgages will be reduced from 2.15% to 1.5%. VA mortgages have the least default rate of any government guaranteed loans and that smaller rate is factored into the decrease in the loan fees.

FHA loans will be making a major change that will affect buyers, sellers and mortgage lenders. The highest mortgage limit of FHA loans will be lowered appreciably. The highest obtainable amount varies by location, but in a number of locations, the amount is going to go down by more than 35%. The fall in the maximum mortgage limit is centered on reductions in home values and prices over the past few years. These new maximum amount rates will go into effect October 1st.

Rural development loans, USDA home loans will be affected in 3 ways. First, the loan funding fee will fall from 3.5% to 2.0%. The drop in the funding fee is good news, but the addition of a new requirement balances that drop.

The second balancing change for USDA loans is that for the 1st time, mortgage insurance will be mandatory for USDA guaranteed loans. The mortgage insurance premium (MIP) will be set at 0.3% yearly of the loan amount.

Let's look at how these changes work against each other. For a $100,000 mortgage, you will pay $1,500 less in the loan funding fee, but will pay $300, or 0.3%, in mortgage insurance. The insurance payment will come out monthly at roughly $25. As you can see, the difference will be in your favor for the 1st 5 or so years, but then you will carry on funding the MIP for the period of the loan.

The third change to USDA loans is in the USDA eligibility maps. These maps show properties (houses and condos) in regions eligible for USDA mortgages. As a result of development in many regions, homes in suburban locations are presently eligible. That will change on October 1st. In spite of this, be certain to talk with a USDA mortgage specialist since many locations that you might not think eligible will still be included in the maps. A specialist can also tell you about homes close to your location that  could permit you to take advantage of the USDA loan program.

Government mortgage loan programs make available guaranteed mortgages that require smaller or no down payment and less stringent credit standards. Qualify for one of these loans programs can allow you to purchase your next home will less money out of your pocket through lower or no down payment and lower closing costs.