October 1, 2011 Changes

• On October 1, 2011, the USDA is changing their current fee requirements. Rather than charging a 3.5 percent guarantee fee on a rural home loan purchase, the USDA will begin charging a 2 percent guarantee fee. The USDA is also adding an annual fee of .3 percent to the loan requirements. The 2 percent guarantee fee is tax deductible.
  
  

Fee Rolled Into the Loan

• According to the USDA, the 2 percent fee can be rolled into the loan. The 2 percent fee is added above the appraised value of the property, making the loan-to-value ratio 102 percent. The buyer does not have to provide the 2 percent fee in cash at the time of closing. The total fee is tax deductible even if it is rolled into the loan.
  
  

Fee Excluded from the Loan

• The USDA allows a buyer to secure a loan without including the 2 percent fee in the loan. The seller can concede to pay the fee on behalf of the buyer. If the seller pays the fee at closing, he can take the deduction on his federal tax return. The buyer cannot take the deduction.
  
  

Mortgage Insurance Premium

• A buyer can pay mortgage insurance rather than the 2 percent loan guarantee fee. According to the USDA, the mortgage insurance will continue until 20 to 25 percent equity is established in the property. All of the mortgage interest is tax deductible on federal tax Form 1040.