There are certain things in life that you can just about count on. Besides death and taxes, each fall the leaves turn colors and grace us with the beauty of nature. Also, each October (because that’s when the government’s fiscal year starts), we see changes in the USDA loan programs that usually grace us with more rules and higher costs.
This year, Indiana USDA brought us a surprise in the spring. When I say surprise, it’s not like a birthday party, but more like a flat tire when you are running late for work.
First, a little background. USDA only backs the loans that we write, but they need to sign-off on them to show that they meet their guidelines and are acceptable to them. The file is sent to a USDA office for their approval after it is done being underwritten and a signature is usually the last thing needed before we can get a clear-to-close. Historically, the files have been sent to the local USDA office and the turn around time was usually 1-2 days.
Since March of this year, all the files are submitted to one email address for Indiana and they go into a queue. As one file gets approved and sent back to the lender, another one is assigned to that person, and so on. All the USDA offices in Indiana are getting files from all over the state, not just their local area. The result? The current turn around time has gone from 1-2 days to 30-35 days!!!
Yes, it is now possible to have the loan approved by the lender and wait 4-5 weeks for USDA approval before you can close on your new home. I’m not placing blame on any person, just stating a fact. The folks I have spoken with at the offices have been wonderful to deal with and extremely helpful, but really backed up.
The problem is that it is difficult for the lenders like myself to lock a loan knowing that it could take this long to get approved. This results in the unintended consequence of the clients getting potentially a higher rate than they would on a shorter lock time, or floating the rate and hoping that the rates don’t go up. The other issue is telling the potential seller that the usual time for the lender to approve and fund the loan will now be extended by another 4-5 weeks.
It seems that I have digressed, and well, I have. The “fall surprise” this year is an increase in the annual fee (paid monthly) from 0.3% to 0.4% of the outstanding balance. While it’s really not that much (one tenth of one percent), it is an increase.
Now for the good stuff. USDA is still 100% financing and you can roll in the cost of the upfront fee at closing. Besides that, the guidelines are still pretty loose compared with other programs, so it does make sense to look at the USDA program.
Also, structured properly, USDA loan costs such as appraisal, lender fees, etc. can be paid for by the seller. Because of this, most of my borrowers are getting money back at closing instead of having to bring money in. While the cash was theirs to begin with in the form of earnest money deposit and appraisal fees, it’s nice to see the buyer walk out of closing with a check. We may be able to help you do the same!
If you have questions about the USDA loan program in Indiana, feel free to contact me so that I can walk you through the process and help you decide if this is the right mortgage loan for your individual situation.