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Find out how the USDA guarantee fee works, what the current upfront and annual rates are, and how to calculate your total costs before you apply.

USDA Guarantee Fee: What It Is and How Much You'll Pay

Graphic illustrating the USDA loan guarantee fee structure and its impact on homebuyers.The USDA guarantee fee is one of the most important costs to understand when financing a home through the USDA loan program. Unlike conventional loans that require private mortgage insurance, USDA loans charge an upfront guarantee fee and an annual fee that together keep the program self-sustaining.

For many Americans, purchasing a home in a rural area can seem unattainable due to high down payments, stringent credit requirements, and quickly accumulating closing costs. The USDA loan program provides a solution by offering affordable financing with little or no down payment.

A distinctive feature of this loan type is the USDA guarantee fee. This fee supports the loan guarantee, making USDA home loans accessible for low- and moderate-income buyers. But what exactly is the USDA guarantee fee, and how does it function? Let's explore.

USDA Loan Mortgage Calculator Use our USDA Mortgage and Payment Calculator to estimate the Guarantee fee.

Understanding the USDA Loan Program

The USDA loan program, officially known as the USDA Rural Development Guaranteed Housing Loan Program, assists borrowers in buying homes in designated rural areas.

Backed by the United States Department of Agriculture (USDA), this program aims to promote homeownership in communities with limited resources. It is designed for buyers who meet specific income and location criteria.

  • USDA home loans enable eligible borrowers to purchase homes without a significant down payment.

  • The program supports homeownership in rural and suburban regions.

  • Borrowers must adhere to income limits based on household size and area median income.

By guaranteeing a portion of the loan for lenders, the USDA reduces the risk of default, allowing lenders to offer lower interest rates and more flexible credit standards.

Use our USDA Mortgage and Payment Calculator to estimate the Guarantee fee

What is the USDA Guarantee Fee?

The USDA guarantee fee is a form of mortgage insurance that funds the government's loan guarantee, ensuring lenders are protected if borrowers fail to make payments.

This fee consists of two components: the upfront guarantee fee and the annual fee.

Upfront Guarantee Fee

The upfront fee is paid at closing and typically equals 1% of the loan amount for most USDA guaranteed home loans.

For instance:

  • If you purchase a home for $200,000 using USDA financing, the upfront guarantee fee would be $2,000.

This fee can be included in the mortgage, keeping upfront costs manageable.

Annual Fee

The annual fee is paid each year for the duration of the loan, and unlike the upfront fee, it is added to your monthly payments.

Currently, the USDA annual fee is set at 0.35% of the remaining loan balance.

For example:

  • On a $200,000 loan, the annual fee for the first year would be approximately $700, or around $58 per month.

This fee decreases as you pay down the mortgage over time.

Why Does the USDA Charge Guarantee Fees?

These fees are crucial as they fund the USDA's ability to guarantee home loans. The program is intended to be self-sustaining, ensuring that taxpayers do not bear the costs of defaults directly.

By charging a modest guarantee fee, the USDA maintains the loan program's availability to future homebuyers while keeping costs lower than those of many other loan options.

For comparison:

  • FHA loans charge both an upfront mortgage insurance premium and annual premiums, often at higher rates than USDA mortgage fees.

  • Conventional loans may also require private mortgage insurance, which is generally more expensive.

Overall, USDA loans remain one of the most affordable options for eligible buyers. Learn more about USDA vs. FHA loans and USDA vs. conventional loans to see how they stack up.

Who Pays the USDA Guarantee Fee?

The borrower is responsible for both the upfront and annual fees. However, since the upfront fee can be financed into the loan, there is no requirement to pay it in cash at closing, making it easier for buyers without substantial savings to afford a home.

The annual fee will be included in your monthly mortgage payment alongside principal, interest, and taxes.

How Do Guarantee Fees Affect Monthly Payments?

While the guarantee fees contribute to the total loan cost, they are relatively low.

For most borrowers:

  • The upfront guarantee fee only slightly raises the loan amount.

  • The annual fee adds a modest sum to monthly payments.

These fees enable lenders to offer competitive USDA loan rates and flexible credit requirements, even for buyers with low income or limited credit histories.

Who Can Qualify for a USDA Loan?

Not all homebuyers are eligible for a USDA home loan. To qualify, you must meet several criteria:

  • The home must be located in a designated USDA rural area.

  • Your household income must not exceed the program's limits for your area and family size. Check our USDA income limits guide for details.

  • The home must serve as your primary residence.

  • You must meet credit and debt-to-income standards, though these are more flexible than many other loan types. Review our USDA credit score guidelines and debt-to-income ratio pages for specifics.

If eligible, you can use a USDA loan to buy a home, refinance an existing USDA mortgage, or, in some cases, repair or improve a home. See our USDA guaranteed loan page for more on the program.

How Do You Apply for a USDA Loan?

Applying for a USDA loan begins with finding an approved USDA lender. Not all lenders offer this program, so it's essential to select a USDA preferred lender experienced in these loans. Start with our approved lenders list.

The application process is similar to that of other home loans:

  • Submit an application detailing your income, credit history, and documentation.

  • The lender will determine if you qualify based on USDA guidelines.

  • Once approved, the loan will undergo underwriting, including USDA's review.

  • You'll pay the upfront fee at closing (or roll it into the loan) and start making monthly payments that include the annual fee.

For a step-by-step walkthrough, see our guide to applying for a USDA loan and our USDA preapproval page.

How USDA Guarantee Fees Compare to Other Loan Types

Many borrowers weigh the USDA loan program against other popular options, such as FHA loans and conventional mortgages.

  • FHA loans require a 1.75% upfront mortgage insurance premium and annual premiums of approximately 0.55%–0.85%. Overall, USDA loans typically cost less.

  • Conventional loans often necessitate private mortgage insurance if you do not make a 20% down payment. PMI rates vary but generally exceed USDA fees.

For eligible borrowers, opting for a USDA loan frequently results in lower monthly payments and reduced upfront costs. Compare options side by side on our USDA vs. VA loan and USDA direct vs. guaranteed loan pages.

Tips for Using a USDA Loan

If you plan to purchase with a USDA loan, consider these tips:

  • Check the USDA's online map to confirm the property is in an eligible USDA rural area. Our USDA property eligibility page explains how.

  • Ensure your household income is within the adjusted limits for your region.

  • Improve your credit score to secure the best USDA loan rates. See our USDA credit score requirements for guidance.

  • Save for other closing costs, even though a large down payment is not necessary.

  • Consult your lender about how the upfront guarantee fee and annual fee will influence your monthly payments.

Frequently Asked Questions About the USDA Guarantee Fee

What is the current USDA guarantee fee rate?

The upfront USDA guarantee fee is 1% of the loan amount, and the annual fee is 0.35% of the remaining loan balance. These rates apply to most USDA guaranteed home loans.

Can the USDA upfront guarantee fee be financed?

Yes, the upfront guarantee fee can be rolled into the mortgage loan amount, so you do not need to pay it in cash at closing. This makes it easier for buyers with limited savings.

How is the USDA annual fee calculated?

The annual fee is 0.35% of your remaining loan balance, divided into 12 monthly payments. It decreases over time as your loan balance goes down.

Do USDA loans have PMI?

No. USDA loans do not require private mortgage insurance (PMI). Instead, they charge a guarantee fee that serves a similar purpose but is typically less expensive. Learn more on our USDA annual fee page.

Who pays the USDA guarantee fee?

The borrower is responsible for both the upfront and annual guarantee fees. The upfront fee is paid at closing, and the annual fee is included in monthly mortgage payments.

Final Thoughts

The USDA guarantee fee is a small yet essential component of the USDA loan program. It funds the loan guarantee that facilitates affordable home loans for buyers in rural and suburban areas.

By charging an upfront fee and a modest annual fee, the USDA maintains a sustainable program accessible to borrowers who might otherwise find homeownership challenging.

For many, USDA financing is the key to homeownership, providing low interest rates, no down payment, and lower costs than alternative loan options. Understanding how the guarantee fee works will help you make informed decisions as you embark on your homebuying journey.

Use our USDA Mortgage and Payment Calculator to estimate the Guarantee fee to estimate the Guarantee fee.