The USDA Loan fees for FY 2023 are an upfront guarantee fee of 1.0% of the loan amount and an annual fee of 0.35% of the loan amount. These fees apply to both home purchases and refinance transactions during the 2023 fiscal year, which runs October 1, 2022, through September 30, 2023.
Back on October 1st, 2016 the USDA implemented the changes to the loan fees, reducing the guarantee fee from 2.75% to 1.0% of the loan amount and the annual fee from 0.50% to 0.35% of the average scheduled unpaid principal balance for the life of the loan. This decrease went into effect for all USDA Commitments issued on or after October 1, 2016, regardless of the application date or the date the loan was submitted to USDA.
USDA loans are a great option for buyers looking to purchase homes in rural and suburban areas These government-backed loans offer competitive interest rates and do not require any down payment. However, borrowers do have to pay an upfront guarantee fee and an annual fee when getting a USDA loan. In this comprehensive guide, we will explain everything you need to know about USDA loans guarantee fees
What is a USDA Loan?
USDA loans are mortgages backed by the United States Department of Agriculture (USDA). They help make homeownership more accessible and affordable for low-to-moderate income buyers in rural and suburban locales.
The USDA guarantees these loans, protecting the lender against losses if the borrower defaults. Government backing allows lenders to offer lower interest rates and flexible underwriting on USDA loans compared to conventional mortgages.
To get a USDA loan, you work with a lender such as a bank or credit union approved to issue these mortgages The lender handles your application and loan process but the loan is insured by the USDA.
What is the USDA Guarantee Fee?
When you get a USDA loan, you have to pay an upfront guarantee fee and an annual fee. The fees are set by the USDA and help make these loans available.
Upfront Guarantee Fee
This one-time fee is usually added to the mortgage amount and paid at closing. For 2024, the upfront fee is 1% of the total loan amount.
On a $200,000 loan, the upfront fee would be 1% of $200,000 = $2,000. So the total loan amount would equal $202,000.
Annual Fee
The annual fee is typically financed into the loan. For 2024, the annual USDA loan fee is 0.35% of the loan amount.
For a $200,000 loan, the annual fee is 0.35% of $200,000 = $700. Divided by 12 months, that equals $58.33 monthly. This fee is paid as part of the monthly mortgage payment.
To estimate your upfront and annual fees, you can use a USDA guarantee fee calculator.
Are USDA Guarantee Fees Refundable?
No, unfortunately USDA guarantee fees are non-refundable. Even if you pay off your USDA loan early or refinance into another loan type, you will not get any portion of the guarantee fee back.
It is an upfront cost required to obtain a USDA mortgage. However, the fee may be able to be rolled into the loan amount rather than paid out of pocket.
How Do USDA Guarantee Fees Compare to Other Loans?
USDA loans usually have lower upfront mortgage insurance fees compared to FHA and VA loans:
- USDA loans: 1% upfront guarantee fee and 0.35% annual fee
- FHA loans: 1.75% upfront mortgage insurance premium and 0.45% – 1.05% annual mortgage insurance premium
- VA loans: 2.3% funding fee with no annual fee
Conventional loans with less than 20% down require private mortgage insurance:
- Conventional 97 loan: 1.75% upfront PMI fee + annual 0.25% – 1.13% PMI
- Conventional 95 loan: 1.75% upfront PMI fee + annual 0.45% – 1.15% PMI
So USDA loans generally have lower fees than FHA and conventional loans. Only VA loans have a lower upfront cost. However, VA loans require you to be a qualified military member.
What Do USDA Guarantee Fees Pay For?
USDA guarantee fees compensate the Department of Agriculture for backing these mortgage loans. They serve a function similar to mortgage insurance.
If the borrower defaults, the USDA pays the lender for losses. The guarantee fees create a fund to reimburse the USDA when this occurs. This allows the government to provide competitive loan programs without taking losses.
By paying the upfront and annual fees, you keep this mortgage insurance system running. The fees are mandatory for obtaining a USDA loan.
Can USDA Guarantee Fees Be Financed into the Loan?
Yes, USDA guarantee fees can typically be rolled into the loan amount rather than paid upfront in cash.
The lender will usually give you the choice to finance the fees or pay them out of pocket at closing. Financing the fees increases your loan balance but does not require coming up with cash.
Certain lenders may have rules about the maximum fees they will finance based on loan-to-value ratio. But in most cases, you can add the USDA guarantee fees to the mortgage amount.
How Are USDA Guarantee Fees Calculated?
USDA guarantee fees are calculated based on a percentage of the total mortgage loan amount.
As mentioned above, the upfront fee is equal to 1% of the loan amount for 2024. The annual fee is 0.35% of the original loan amount.
For example, on a $250,000 loan:
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Upfront guarantee fee: 1% of $250,000 = $2,500
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Annual fee: 0.35% of $250,000 = $875
To find the monthly annual fee payment, divide the annual amount by 12. Here, $875 / 12 = $72.92 per month.
Always double check the current USDA fee rates rather than assuming past percentages. The fees are re-evaluated annually and can change year to year.
Can I Get a USDA Loan With No Guarantee Fee?
There is no way to get a USDA loan without paying the guarantee fee. This mandatory fee is charged on all USDA mortgages to provide the mortgage insurance backing.
Even with excellent credit or a higher down payment, all borrowers must pay the guarantee fee. It cannot be waived or removed from your loan.
If you want to avoid this USDA fee, you would need to consider a different loan program like a conventional or VA loan. Each loan type has its own pros and cons to weigh.
Are There Discounts on USDA Guarantee Fees?
The USDA does not offer discounts on guarantee fees for borrowers. The set rates published each year are fixed for all borrowers nationwide.
Your lender also cannot discount or credit back any portion of the guarantee fee. As the USDA’s lending partner, they must charge the full published rate.
The only way to potentially reduce the impact of the guarantee fee is financing it into your loan rather than paying upfront. This prevents the fee from raising your closing costs.
Can I Pay for Points to Lower Interest Rate?
Paying “points” means paying additional fees to the lender at closing to buy down your mortgage interest rate.
Many lenders do allow points on USDA loans. Paying points lets you lower your rate, reducing monthly payments. This can help improve loan affordability.
Each point is equal to 1% of the loan amount. So on a $200,000 loan, 1 point would equal $2,000 paid to lower the rate.
Ask your lender if they offer point options on USDA loans and how much you can potentially reduce rates. Buying points can save substantially on interest costs over the life of the loan.
The Bottom Line on USDA Guarantee Fees
While paying guarantee fees increases your upfront costs, USDA loans remain one of the most budget-friendly mortgage options. The guarantee fees are very reasonable compared to PMI and monthly payments are very affordable.
A bit of extra cost in origination fees is worth it when you can get into a home with no down payment required. Just make sure to factor the fees into your homebuying budget.
USDA Guarantee Fee Change Impact
The guarantee fee (upfront) used to be 2.75%, so on a $200,000 home loan, your total loan amount would be $205,500. Now that the fee has changed to 1%, your new total loan amount would be $202,000. That means you would be financing $3,500 fewer dollars! That is a big difference!
USDA Annual Fee Change Impact
On the annual fee side (which calculates to a monthly fee when you pay your mortgage each month), the old 0.50% would mean that on a $200,000 base loan amount, your monthly payment for Mortgage Insurance would be roughly $83.33 a month. With the reduced annual fee at 0.35%, the payment would now be roughly $58.33. That’s a $25/month difference in payment!
This is great news for borrowers, as the lower USDA loan fees allow for lower total loan amounts, lower monthly payments, and will allow for a higher pre-qualification value in certain cases.
5 Things You Need to Know About USDA loans
FAQ
What is a typical loan guarantee fee?
What is the upfront guarantee fee?
Who pays the guarantee fee?
Do USDA loans require a personal guarantee?
What is the USDA loan guarantee fee?
The USDA loan guarantee fee helps enable the USDA to make these mortgages available and essentially functions as mortgage insurance for a USDA loan. The upfront guarantee fee for 2024 is equal to 1% of the loan amount. The annual fee is equal to 0.35% of the loan amount.
How much does a USDA loan cost?
With a USDA loan, you’ll pay an upfront guarantee fee and annual fee. Both fee amounts are periodically reevaluated by the USDA, subject to legal limits. Based on the current law, the absolute maximum amount that can be charged for the upfront guarantee fee is 3.5% of the loan amount.
How much does a USDA guarantee cost in 2024?
The upfront USDA guarantee fee in 2024 is 1% of the loan amount, as noted. So, if you have a $200,000 home loan, for example, your total loan amount would become $202,000. The annual fee is usually financed into your loan. As noted already, annual fee for 2024 is 0.35% of the loan amount.
How much does a USDA loan cost in 2024?
To get a USDA loan, you must pay the upfront guarantee fee, which is usually added to the initial loan amount and paid at closing. The upfront USDA guarantee fee in 2024 is 1% of the loan amount, as noted. So, if you have a $200,000 home loan, for example, your total loan amount would become $202,000.