USDA’s new fiscal year begins October 1, 2015. While USDA has not yet published any administrative notice on this topic, it is expected to be handled as it has been in years past.
USDA will issue conditional commitments that are “Subject to the availability of Commitment Authority” for the first few weeks of the new fiscal year until their funding reallocation is complete.
USDA Home purchase and refinance loans will not be permitted to close if they receive a Conditional Commitment with “Subject to” language.
In addition to the funding reallocation, all USDA loans that receive a conditional commitment on or after October 1, 2015, the upfront guarantee fee will be 2.75% (currently 2.00%) of the loan amount.
For example, a loan amount of $100,000 would now have a guarantee fee of $2,750 added on top of the loan balance in comparison to $2,000 currently on the same loan amount.
This amount will not affect the borrower’s cash to close since it is added on top of the existing loan amount but it could increase the borrower’s debt-to-income ratio above the current 29%/41% max ratio limits.
The USDA guarantee fee works similar to the current upfront funding fee that is issued by The FHA for purchase and refinance transactions.
The USDA guarantee fee will be 2.75% on loans without a Conditional Commitment received by September 30, 2015.
These upcoming changes could quite possibly delay USDA Conditional Commitments as October approaches so everyone’s expectations should be set accordingly and USDA transactions should not be expected to close during the first 2-3 weeks of October until funding reallocation has been completed.
Contact Brian Esquivel for more information on this and any other mortgage questions.