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Animated calculatorA USDA home loan is a mortgage with no down payment for qualifying rural borrowers. Approved USDA lenders provide the financing for USDA guaranteed mortgages, not the USDA. The USDA guarantees the mortgage loan. This means that if a lender has to foreclose on a borrower for non-payment or some other reason, the USDA will partially reimburse the lender for the loss.

The USDA uses the guarantee fee to support their loan programs. In addition to the guarantee fee, the borrower also pays an annual fee. The annual fee is payable in twelve equal monthly payments. The USDA annual fee is comparable to FHA mortgage insurance.

The current USDA guarantee fee is 1% of the loan amount. The annual fee is .35% of the loan amount. To calculate the monthly fee, multiply the loan amount by .35% and divide the total by 12 (months). As the loan balance decreases every year, the monthly fee will also come down.

Which USDA Mortgage Programs to Buy a House??

There are two purchase and three refinance programs backed by the USDA. The most popular purchase program is the Guarantee loan program. The 2nd purchase program is the Direct loan program. The Direct program is only for low-income and very low-income households. Borrower make application directly to the USDA. The three refinance programs also require the guarantee fee and annual fee.

How Does the USDA Compare to the FHA Loan Program?

Home buyers standing in front of their new homeThe guidelines between the FHA and USDA loan are similar. But, there are a few differences. For instance. The USDA requires the home to be located in a USDA eligible area. The USDA provides an easy-to-use lookup tool to determine whether the home is eligible.

There are no area restrictions with the FHA program.

USDA borrowers must be at or below the required income limits. The income limits are reasonable. The FHA does not have income limits.

As mentioned previously, the USDA loan program requires borrowers to pay a guarantee fee of 1% and the annual fee, which is paid monthly. 

The FHA also has a guarantee fee, called the funding fee. The funding fee is 2.25% of the loan amount. Like the guarantee fee, the cost can be financed with the loan, paid in cash at settlement or paid by a willing seller

The monthly USDA fee is .35%. For FHA borrowers with the minimum down payment, the cost is .85% of the loan amount. The calculation for the monthly FHA fee is the same as the USDA annual fee.

Which Loan Program is Best?

The USDA loan is preferable over the FHA loan if you meet the income and location requirements. The upfront fee is less with the USDA guarantee loan and the monthly fee is less.
Learn more about the FHA loan at

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