USDA Increases Costs of Guarantees for 0% Down Mortgages

The U.S. Department of Agriculture's Rural Housing Service is raising the cost of its home-loan guarantees that enable borrowers to purchase homes in certain areas without down payments.

On Oct. 1, the upfront fee paid by buyers under the USDA program will rise to 2.75%, from 2%, according to an email from David Sandretti, a spokesman for the agency.

The move will enable the $24 billion program "to continue to sustain itself without a congressional appropriation to offset credit-related costs," Sandretti wrote.

The need for the increase stems from losses on properties financed during the last decade's U.S. housing bubble exceeding those on homes that weren't overvalued at origination, according to Sandretti. Borrowers can add the increase in upfront fees, he said, to the monthly payments for their 30-year loans, which would total about $4.83 for a typical mortgage of $135,000.

Bloomberg News
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