USDA Guarantee Fee

How the Guarantee Fee Works

USDA loans carry two fees that function similarly to mortgage insurance on FHA and conventional loans. The upfront guarantee fee is 1.0% of the total loan amount and can be financed into the loan balance rather than paid at closing. The annual guarantee fee is 0.35% of the outstanding principal balance, divided into 12 monthly installments added to the mortgage payment.

Comparison to Other Loan Types

The USDA guarantee fee is substantially lower than FHA mortgage insurance, which charges 1.75% upfront and 0.55% annually for most borrowers. Conventional loans require private mortgage insurance (PMI) for down payments below 20%, with rates typically ranging from 0.5% to 1.5% depending on credit score and loan-to-value ratio. USDA's lower fee structure is one reason the program offers lower effective borrowing costs despite requiring no down payment.

When the Fee Can Be Removed

Unlike FHA loans, where mortgage insurance premiums remain for the life of the loan on most originations after June 2013, the USDA annual guarantee fee can be removed once the borrower reaches 20% equity through principal paydown or appreciation. However, unlike conventional PMI, borrowers cannot request early cancellation based on a new appraisal; the loan must be refinanced to eliminate the fee before reaching 20% equity through scheduled payments.