USDA just announced they predict current appropriated funds to be exhausted by May 12, 2010 or shortly thereafter.  What this means is they will be out of money.

As I explained earlier, this is "business as usual" for USDA.  They typically run short each year, but funds are always replenished so business is never interrupted.  This year is different. 

USDA must issue what is called a Conditional Commitment once they approve the loan.  This is the key document Lenders need in order to close the loan.  USDA announced earlier this year that they would NOT issue Conditional Commitments once funds were depleted.  The reason for this is there was great uncertainly as to when/if funds would be available again.

Well just this afternoon, USDA announced that they have authorized their state offices to continue to issue Conditional Commitments "subject to the availability of funds and Congressional authority to charge a 3.5% guarantee fee for purchases loans and a 2.25% guarantee fee for refinance loans".

What does that mean? 

The "subject to availability of funds" is standard language provided each year when funds are depleted.  This just means they will "guarantee" the loan once they have the money to do so.

The "Congressional authority to charge a 3.5% guarantee fee for purchases loans and a 2.25% guarantee fee for refinance loans" is new. 

Currently, USDA charges a Guarantee Fee equal to 2.0% of the loan amount for purchase transactions.  Buyer's have the option to pay for this as part of their closing costs, ask the Seller to pay or add it into their loan as long as the final loan amount is not more than 102% of the purchase price. 

USDA has asked for Congressional approval to increase the fee to 3.5% for purchases.  This has not yet been passed, but based on USDA's current stance, it appears as though it will pass.

Purchaser's will now pay a fee equal to 3.5% of the loan amount.  USDA has not issued anything that provides guidance as to how this fee may be paid.  As of this posting, I do not know if the maximum loan amount will increase to 103.5% of the appraised value or if it will remain at 102%.  If the later is true, then the borrower would need to cover the additional 1.5% (or ask the Seller to pay).

Either way, USDA offers one of the most attractive ways to finance your home.  There is no down payment required and no monthly mortgage insurance. 

Now the one thing to keep in mind is even if USDA says they will continue with business, it doesn't mean a Lender is willing to do so right yet.  Some Lenders may want to wait until Congress has approved and the details are worked out.  Buyers need both USDA and the Lender to sign on the dotted line!

If you have questions regarding USDA loans or other type of financing, please feel free to email me at dgeibel@cascademortgagewa.com or give me a call at 509.232.7725.