Do USDA Loans Have PMI? Mortgage Insurance Explained

A wooden model of a house on a desk with money around itAre you considering a USDA home loan? If so, you may have heard about the guarantee fee associated with this type of loan. This article will discuss the specifics of the guarantee fee on a USDA home loan, including what it is and why it exists. We'll also explore how much the price typically costs and when it needs to be paid. Lastly, we'll look at how this fee can affect your budgeting for the loan.

Key Takeaways

  • How USDA Fees Work: These fees help prospective homeowners qualify for USDA loans, ensuring lender reimbursement in case of borrower default.
  • Cost of Guarantee Fee: It includes an upfront fee (about 1% of the loan) and an annual fee (0.35% of outstanding debt) to safeguard lenders.
  • Benefits of USDA Loan: Ideal for low- to moderate-income families in rural areas, it offers no maximum loan limit, affordability, and no need for a down payment or PMI.
  • Payment Details: Homebuyers spread the USDA guarantee fee's cost over the loan's life, while an annual fee covers program expenses.

How USDA Loan Guarantee Fees Work

The U.S. Department of Agriculture supports the USDA mortgage program, which is why USDA loan guarantee fees help prospective homeowners qualify for one. The USDA guarantee ensures lender reimbursement in the event of borrower failure.
The upfront guarantee fee, based on a percentage of the loan amount, is a one-time payment that guards the lender against losses. The monthly payment for the annual fee is based on the loan's outstanding balance. Fees are what pay for the USDA program, ensuring its long-term viability. Homeowners eligible for a USDA loan consequently discover that the upfront guarantee cost and subsequent annual fees are a wise investment.

How Much is the Guarantee Fee on a USDA Loan?

Housing-guaranteed loans are available through the USDA Loan Program. They are subject to upfront guarantee fees, typically 1% of the loan amount, and annual guarantee fees of 0.35% of the outstanding debt. These charges, added to the loan's overall cost, safeguard the lender if the borrower fails to pay the loan.

The USDA Rural Development Loan is a fantastic alternative for low- to moderate-income families wishing to purchase a qualified property in a rural region. There is no maximum loan limit on the USDA Guaranteed Loan Program, and these loans allow for affordable and long-term homeownership without needing a down payment or PMI.

How is the Guarantee Fee Paid?

For a mortgage loan in a rural area, home buyers who qualify for a USDA loan must pay an upfront fee called the USDA guarantee fee, a percentage of the loan amount. For a $200,000 loan, this fee increases the borrower's loan balance by $2,000 at the current rate of 1% of the loan amount. Although paid to the lender, the guarantee fee is spread out over the life of the loan.

What is the Annual Fee?

If you meet the requirements for a USDA loan as a house buyer, you might be asking what the annual fee is. The USDA permits lenders to charge borrowers a yearly fee known as the USDA Annual Fee to defray program administration costs. A one-time guarantee fee and an ongoing yearly cost make up the fee. The annual cost is paid, but the upfront guarantee fee may be rolled into the loan amount.

It's vital to remember that the guarantee fee and yearly fee are two independent costs and that the USDA annual fee is typically lower than other types of mortgage insurance. If you're thinking about a USDA loan, be sure you comprehend the distinction between the guarantee charge and the annual fee, as well as how they affect the overall cost of your loan.

The annual fee is equal to 0.35% of the loan amount. For example, if you have a $100,000 loan, your yearly cost would be $350. By dividing the annual fee by 12, it is possible to calculate the monthly payment, which totals $29.17 for $350.
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 lower.


In conclusion, prospective homeowners must understand the guarantee fees associated with USDA mortgages. By conducting some research and educating yourself with knowledge, you can be sure to make an informed decision when it comes to financing your dream home.

Converse with lenders and real estate professionals without hesitation; they might be able to provide you with more details regarding the process.

Last but not least, remember that although the guarantee fee must be paid upfront, it may save you money in the long run.

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