Understanding the USDA Loan Guarantee Fee

How much is the USDA Guarantee Fee?

Very nice rural homeThe USDA guaranteed loan program is a great way to get into a USDA rural development loan with a low interest rate.

USDA loans are a type of mortgage loan that is insured by the U.S. Department of Agriculture (USDA). These loans are available to eligible rural and suburban homebuyers. USDA loans are often a good option for first-time homebuyers because they offer low down payment options and have flexible credit requirements.

To qualify for a USDA loan, you must meet the following eligibility requirements:

-You must be a U.S. Citizen or permanent resident alien.

-You must occupy the property as your primary residence

-You must have a satisfactory credit history.

-You must be employed or have a reliable source of income.

-You must meet or be below the household income limit.

-You must have a reasonable debt-to-income ratio.

-You must have enough income to cover your mortgage payments, property taxes, and insurance premiums.

-Your property must be located in an eligible rural or suburban area.

What is a USDA Guarantee Fee?

Beautiful living roomThere is a guarantee fee that is required by the USDA. This fee is based on the loan amount and can be financed into the loan. The USDA loan guarantee fee is used to help the USDA reduce the risk of loss on the loan and to help keep the program affordable for borrowers.

When you obtain a USDA loan, the government will guarantee a percentage of the loan in case you don't repay it. This means that if you can't repay the loan, the government will pay the lender back a percentage of the loan. This guarantee can help you get a low interest rate on your loan.

The USDA loan is supported by the United States Department of Agriculture when you get a USDA home loan. This program is meant to assist qualified borrowers purchase houses. The program is not restricted to a particular geographical location, but is readily available in a lot of rural parts of the country.

One of the costs that comes with a USDA loan is the guarantee fee. This fee is a percentage of the loan amount and is paid at closing. The guarantee fee protects the lender in the event of a default by the borrower. The upfront guarantee fee is less than the upfront fee charged on an FHA loan.

How Much is the Guarantee Fee on a USDA Loan?

The USDA guarantee fee is 1% of the loan amount, which can be paid in cash at closing or rolled into the loan.

The good news is that the USDA guarantee fee is often financed into the loan, so it doesn’t have to be an out-of-pocket expense. The annual fee is 0.35% of the average outstanding loan balance, paid monthly. >Use the USDA guarantee fee and loan calculator

How is the Guarantee Fee Paid?

The USDA guarantee fee is paid by the borrower to the lender as a percentage of the loan amount. The fee percentage is set by Congress and is currently at 1 percent of the loan amount. For example, if you have a $200,000 USDA loan, your guarantee fee would be $2,000. This fee is added to your loan balance and is spread out over the life of the loan.

What is the USDA Annual Fee?

Country homeThe United States Department of Agriculture (USDA) charges an annual fee for guaranteed home loans in addition to the upfront guaranteed fee. The purpose of the loan fee is to offset the costs of the USDA's rural housing program, which helps low- and moderate-income families purchase homes in rural areas.

The annual fee is equal to 0.35% of the loan amount. For example, if you have a $100,000 loan, your annual fee would be $350. The monthly payment is calculated by dividing the annual fee by 12 months. $350 divided by 12 months equals $29.17.

The annual fee is paid with the monthly mortgage payment.

Compared to conventional loans or FHA loans, rates for mortgage insurance for the USDA program are less.

Rotating question markFAQs About the USDA Guarantee Fee

Q. Are USDA loans worth it?

A. It's no secret that buying a home can be expensive. And, while there are many ways to finance the purchase of a home, one popular option is a USDA loan. But, is this type of loan worth it? Here's what you need to know.

USDA loans are backed by the United States Department of Agriculture and are available to borrowers who meet certain eligibility requirements, such as having a low or moderate income. These loans offer competitive interest rates and don't require a down payment.

One downside of USDA loans is that they come with mortgage insurance premiums, also known as a guarantee fee. The loan also requires a monthly fee that's similar to PMI (private mortgage insurance.

Overall, USDA loans can be a great option for borrowers who want to buy a home but don't have a lot of money saved up.

USDA home loans are an excellent path to homeownership. The USDA does not require a down payment, and the home seller is permitted to pay up to 6% of the buyer's closing and prepaid costs. The USDA guaranty fee is less than the FHA upfront funding fee, and the monthly assessment is less. In short, the USDA loan is worth it.

Q. Can the seller pay the USDA guarantee fee?

A. Yes. The seller can pay the USDA guarantee fee, or it can be paid by the buyer. If it is paid by the buyer, it will be added to the purchase price of the property, or paid in cash at settlement..

Q. What is the current upfront USDA guarantee fee?

A. one percent plus the annual fee of .35%

Q. Does USDA loans have prepayment penalties?

A. No. A prepayment penalty is additional interest on a loan if the borrower pays off the loan early. Some people may be wondering if USDA loans have prepayment penalties. The answer to this question is no, USDA loans do not have prepayment penalties.

The reason USDA loans do not have prepayment penalties is because the Department of Agriculture (USDA) wants to make sure that borrowers are able to pay off their loans easily and without any extra fees.

USDA loans come with a guarantee fee, which is a fee that the USDA charges in order to guarantee the loan. This fee is usually about 1% of the total loan amount. However, there are no prepayment penalties associated with this fee.

Q. Does the USDA annual fee ever go away?

A. Unfortunately, no. This fee is charged each year that the loan is in effect. It does not go away, regardless of down payment or equity in the property. However, if the property is sold or refinanced to another loan other than a USDA loan, the guaranty fee will be extinguished.

Q. Does the USDA loan cover closing costs?

A. Generally, no. But there is a possibility for a subsidy with the USDA Direct loan. Some borrowers may be wondering if the USDA will guarantee or fund their closing costs. The answer is no; the USDA does not fund or guarantee closing costs. However, the lender may be able to offer a credit towards closing costs, which can lower your out-of-pocket expenses at settlement.

Q. What are the benefits of USDA loans?

A. A USDA mortgage is a mortgage loan that is insured by the United States Department of Agriculture. The program is available to home buyers in rural areas and offers 100% financing. This means that there is no down payment required, and the entire loan amount can be financed.

USDA loans come with several benefits, including:

No, down payment required – This is a major benefit of USDA loans. Home buyers can finance the entire purchase amount with no money down.

Low interest rates – USDA loans offer competitive interest rates, which can save home buyers' money over the life of the loan.

Easy qualification – USDA loans are available to borrowers with a wide range of incomes and credit scores. There are no income or asset limits, and there is no need for a high credit score.

Q. Where are USDA loans available?

A. Use the USDA lookup tool to find eligible areas.

>Property eligibility

Read more about USDA loans with our questions and answers page


In conclusion, USDA loans are available in many rural and suburban areas. The government will guarantee a percentage of the loan, so it's a great option for those who want to purchase a home but don't have the money for a down payment. If you're interested in obtaining a USDA loan, be sure to talk to your lender about the process.

Upfront Guarantee Fee & Annual Fee
Guarantee Fee Calculator (spreadsheet)

Recommended Reading

  1. What Are the Credit Requirements for a USDA Home Loan? 
  2. What Are the Requirements for USDA Loans?
  3. What Is a USDA Streamline Refinance?