Understanding USDA Home Loan PMI

How much is the PMI with the USDA loan?

Country home financed with a USDA loanThe USDA provides a variety of specialized loans that don't require mortgage insurance. However, these loans require two different forms of mortgage insurance – an upfront guarantee fee and an annual fee that serves as the monthly mortgage insurance (PMI). The upfront guarantee fee is typically a few hundred dollars, but the annual fee can be much more. Because of this, it's important to compare loan options carefully to ensure you're getting the best deal.

How much is the USDA annual fee?

This USDA annual fee is currently 0.35% of the loan amount, and it's required for the life of the loan. The good news is that this annual fee can be canceled if the loan is paid off early or if the property is sold.

How much is the USDA guarantee fee?

The upfront guarantee fee is 1% of the loan amount, and it's due when you get your loan. This fee goes to the USDA to help cover the cost of guarantees made to lenders.

Private mortgage insurance

Private mortgage insurance (PMI) is a fee charged by lenders when the borrower is unable or unwilling to make a 20% down payment on a conventional loan.

Conventional loans are not backed by the federal government; rather, the loan is structured to meet the guidelines of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). There are five private mortgage insurance options and a clever alternative to PMI that uses a second loan to avoid private mortgage insurance.

The USDA home loan, in contrast to a conventional loan, is guaranteed by the federal government, which makes it more affordable.

How are the upfront and annual fees calculated?

For example, if the loan amount is $100,000, X 1% = $1,000 (guarantee fee). The total loan amount in this scenario would be $101,000 (borrower rolls the upfront fee into the loan amount). The monthly mortgage payment is calculated on this amount.

The annual fee is calculated and paid on an annual basis on the anniversary of the loan's closing date. The yearly fees are adjusted and then distributed equally across 12 equal installments.

In keeping with the previous example, we'll assume a loan amount of $101,000, which includes the upfront guarantee fee of 1%. The annual fee is currently.35%. Now multiply $101,000 by.35% and the annual cost of the guarantee fee is $353.50. To soften the impact of the annual fee, the cost is paid monthly.

$353.50 divided by 12 months equals $29.46.

As you can see, the monthly fee is often confused with PMI.

When does the USDA monthly fee go away?

Unfortunately, the monthly fee never goes away. The only way to get rid of the annual or monthly fee is through refinancing.

USDA vs. FHA Loans

The USDA guarantee fee and annual fee are lower than the FHA fees.

Currently, the upfront fee for an FHA home loan is 1.75% of the loan amount. The USDA fee is only 1%. That's a win for the USDA.

The monthly fee ranges from 0.45–1.05% depending on the loan amount and term. For an FHA loan with the minimum down payment and a 30-year term, the monthly mortgage fee is.85% of the loan amount. Another win for the USDA program.

And last, but not least, is the down payment requirement. There is no requirement for a down payment with USDA loans. The minimum down payment for a 203(b) home loan with FHA is either 3.5 percent or 10 percent, depending on the credit score. Another clear win for the USDA loan program.

USDA vs. VA Loans

The Veteran's Administration requires an upfront fee, like the USDA. The cost varies from 1.4% to 3.6% depending on the down payment, if applicable, and whether the loan is for a purchase or refinance. Veterans receiving disability payments from the federal government and Purple Heart recipients are exempt from the upfront funding fee. The VA does not require monthly PMI or MIP fees.

USDA vs. Conventional Loans

Borrowers closing on a house with a USDA loanDue to the fact that conventional loans are not guaranteed by the federal government, they do not need upfront mortgage insurance. Mortgage insurance is required on conventional loans with down payments of less than 20%.

Monthly payments vary according to the down payment, credit score, and loan purpose (purchase or refinance loan). As previously stated, there are a variety of payment choices. Monthly private mortgage insurance is the most common type of private mortgage insurance. PMI will be eliminated under this plan after the home's equity reaches a minimum of 20%. In rare instances, the equity may need to reach 78%.

A 5% down payment is required for a conventional loan. However, there are two loan programs that require only a 3% down payment. For 3% mortgages, the PMI premium ranges from 0.58 percent to 1.86 percent.


The USDA provides a variety of specialized loans that don't require mortgage insurance. However, these loans require two different forms of mortgage insurance an upfront guarantee fee and an annual. If you're interested in a USDA loan, be sure to ask your lender about the upfront guarantee fee and annual mortgage insurance.

Recommended Reading

  1. USDA Loan Mortgage Calculator: How Much Can You Afford?
  2. What is per diem interest on a USDA loan?
  3. USDA Loans: Can the Seller Pay Closing Costs?