What Is the USDA Guarantee Fee?
The USDA guarantee fee is a required cost on USDA-guaranteed home loans. It helps fund the program and protect lenders when they offer no-down-payment mortgages to eligible borrowers.
Unlike conventional loans, USDA loans don't require a down payment or private mortgage insurance. Instead, they use a guarantee fee structure. The structure has two parts: an upfront guarantee fee and an annual fee. The upfront fee is charged once at closing, while the annual fee is an ongoing cost, divided into monthly payments and included with your mortgage payment.
For many eligible buyers, the guarantee fees are generally lower than the mortgage insurance costs on other low-down-payment loan options. The USDA guarantee fee isn’t meant to be an added penalty; instead, it helps keep the USDA loan program available to borrowers who meet income, property and location requirements.
The current USDA guarantee fee includes a 1% upfront fee and a 0.35% annual fee.
| USDA Fee | Cost | How It's Paid |
|---|---|---|
| Upfront Guarantee Fee | 1% of the loan amount | Paid at closing or rolled into the loan |
| Annual Fee | 0.35% of the remaining loan balance | Paid monthly as part of the mortgage payment |
These two fees are the main USDA loan-specific costs borrowers should understand when comparing USDA loans with FHA, VA, and conventional mortgage options.
The USDA upfront guarantee fee is a one-time fee equal to 1% of the total loan amount. Many borrowers choose to finance it into their mortgage rather than pay it out of pocket at closing.
As an example, if your base USDA loan amount is $250,000, the upfront guarantee fee would be:
$250,000 x 1%= $2,500
If you pay the fee at closing, your loan amount would stay at $250,000, and you would need to bring the $2,500 fee to closing along with any other closing costs not covered by seller credits, lender credits or other approved sources.
If you roll the fee into the loan, it changes the math slightly:
$250,000 base loan amount + $2,500 upfront fee= $252,500 total financed loan amount.
In that scenario, you’re not paying the $2,500 upfront; you’re borrowing it, so your monthly payment is based on the larger loan amount, and you’ll pay interest on that amount over time.
USDA loans can be an attractive option for buyers with limited cash available because you might be able to buy with no down payment and avoid paying the upfront guarantee fee out of pocket. However, your total loan balance will be slightly higher.
The USDA annual fee is an ongoing charge equal to 0.35% of the remaining loan balance, but it’s not usually paid once a year. Instead, it’s divided into monthly installments, and then those are included in your mortgage payment.
Unlike the upfront fee, which is calculated on the original loan amount, the annual fee is based on the remaining unpaid principal balance and generally decreases over time as you pay down the loan.
For example, if your remaining USDA loan balance is $250,000, the estimated annual fee would be:
$250,000 x 0.35% = $875 per year.
Divided by 12 months, that would be about:
$875/12 = $72.92 per month.
On a $200,000 remaining loan balance, the annual fee would be:
$200,000 x 0.35% = $700 per year.
That equals around:
$700/12= $58.83 per month.
The actual amount can change as your loan balance declines, so early in your loan term, the fee would be higher because the loan balance is higher. Later, as more of the principal is paid down, the annual fee will decrease.
The USDA annual fee doesn’t automatically fall off when you reach a certain amount of equity, but borrowers may be able to eliminate it later by refinancing out of the USDA loan.
With some conventional loans, private mortgage insurance can often be removed once a borrower reaches enough equity, but USDA loans don’t work the same way, and the annual fee is tied to the USDA loan itself.
That said, the fee isn’t necessarily permanent because if your home value rises, your loan balance decreases, and your credit and income still qualify you, you may be able to refinance into a conventional mortgage eventually. If the new conventional loan doesn’t require private mortgage insurance, the refinance could take the USDA annual fee out of your monthly housing cost.
As a borrower, there are two numbers to track over time: your remaining loan balance and your estimated home value. Once the loan-to-value ratio improves, you might want to ask a mortgage specialist if refinancing makes financial sense.
The key is comparing potential savings against the cost of refinancing. While removing the annual fee can be helpful, you have to weigh it against closing costs, interest rate changes and how long you plan to stay in the home.
USDA charges a guarantee fee to help make the loan program self-sustaining and reduce the risk of offering no-down-payment mortgages through approved lenders.
The USDA doesn’t directly lend money through the guaranteed loan program, and instead, approved lenders issue the loans while the USDA provides a guarantee to reduce the risk for the lender. The guarantee is what helps eligible borrowers access 100% financing.
The guarantee fee helps cover potential losses when borrowers default, and it keeps the program running without making the cost fall entirely on taxpayers. For borrowers, the tradeoff is that you pay the USDA loan fees but may be able to buy a qualifying home with no down payment and competitive loan terms.
The USDA guarantee fee is often lower than FHA mortgage insurance costs, while VA loans use a different funding fee structure that depends on the borrower’s military service status, down payment, and any prior VA loan use.
| Loan Type | Upfront Fees | Ongoing Annual Cost | Notes |
|---|---|---|---|
| USDA Loan | 1% upfront guarantee fee | 0.35% annual fee | No down payment required for eligible borrowers and properties |
| FHA Loan | 1.75% upfront mortgage insurance premium | Often 0.55% annually | Annual MIP may last for the life of the loan in many cases |
| VA Loan | Varies by borrower, down payment, and prior VA use | No monthly mortgage insurance | Some borrowers are exempt from the VA funding fee |
For eligible borrowers, USDA can be more affordable in the long term than FHA because the annual fee is usually lower than the FHA annual mortgage insurance. It’s relevant because ongoing mortgage insurance or guarantee fees can affect your monthly payment for years.
USDA loans also differ from VA loans because VA loans don’t have monthly mortgage insurance, but they may include a VA funding fee. The term can cause confusion because many borrowers search for “how much is the USDA funding fee,” but technically, the USDA doesn’t use the term “funding fee.” Instead, the USDA equivalent is the guarantee fee.
When comparing loan programs, the takeaways are that USDA has an upfront guarantee fee and an annual fee. FHA has upfront and annual mortgage insurance premiums. VA has a funding fee but no monthly mortgage insurance.
The best option will depend on your eligibility, location, income, military benefit status, available cash, your credit profile, and long-term plans for the home.
There is no 20% rule for USDA loans. Eligible borrowers can buy with no down payment required.
The 20% figure comes from conventional mortgages, where a 20% down payment lets you skip private mortgage insurance (PMI). USDA loans do not follow that rule.
Instead, qualified buyers pay a guarantee fee, which includes a 1% upfront cost and a 0.35% annual fee, rather than PMI. Those fees typically cost less than mortgage insurance on FHA or conventional loans with a small down payment.
This doesn’t mean USDA is automatically the cheapest option for every borrower, but if you haven’t saved a large down payment, the USDA loan guarantee fee can be a reasonable cost in exchange for 100% financing.
The USDA guarantee fee is 1% upfront and 0.35% annually, paid monthly. Both fees are modest for a loan that requires no down payment, and the upfront fee can usually be rolled into the loan.
Together, these fees help support a loan program that's designed to make homeownership more accessible for qualified buyers.
Talk to a USDA loan specialist to compare your options and see if you qualify.
