Get ready for some upcoming changes to USDA mortgages. They are for the first time incorporating monthly mortgage insurance and its going to have an effect on how much you can borrow. The bad news is that your payment will increase however its not all bad.

USDA mortgage insurance details:

The USDA monthly mortgage insurance for new USDA loans after October 1, 2011 will be .3% annually. The up-front mortgage insurance premium is going from 3.5% back to 2%.

What does this mean to you?

It means that although the up front premium is going down 1.5% there is now monthly mortgage insurance and your payment will go up overall. On an average 250k loan amount the increase in payment is around $44 dollars per month (at 4.5% interest.) That might not sound like a huge amount of money however if your debt to income ratio is right on the edge and you were qualified prior to October 1, you should call your USDA mortgage company and make sure you are still qualified after the change.

Good News for USDA Loans

There is a small yet bright light in all of this seemingly endless tightening of lending restrictions of Government Programs. If you obtain a USDA loan after October 1, 2011 and sell your house before owning it for 7 years you will actually have spent less total money than under the previous guidelines (assuming you paid the minimum monthly payment and put no money down.) USDA is still 100% financing and there is still no down payment requirement so overall the program remains extremely competitive against FHA or even VA in some circumstances.