USDA guarantee fee

USDA guaranteed loans allow eligible buyers in qualifying rural and suburban areas to finance up to the full purchase price, subject to household income limits. The government guarantee that makes this possible is paid for through two fees.

The upfront guarantee fee is 1% of the loan amount. It is normally added to the loan rather than paid in cash. The annual fee is 0.35% of the average unpaid balance, divided into monthly installments and included in the payment.

Worked example. A buyer purchases a $250,000 home with no down payment. Apply the upfront rate to the base loan and add the result to get the total loan amount. For the monthly piece, apply the annual rate to the balance and divide by twelve. Because the annual fee follows the declining balance, it shrinks slightly each year. The USDA loan calculator shows both figures and the resulting payment.

USDA sets these rates by fiscal year and can change them, so check the current figures before quoting. Compared with FHA, the USDA annual fee is often lower, but eligibility depends on property location and household income, which rules many buyers out. Borrowers still pay closing costs, though sellers can often contribute.