USDA Guaranteed Loan Interest Rates in 2023 – What Borrowers Need to Know

The USDA guaranteed loan program provides financing options to help farmers, ranchers and rural homebuyers obtain affordable credit. These loans are not directly issued by the USDA, but rather backed by the agency to encourage private lenders to offer competitive rates and terms.

One key question for borrowers is – what will USDA guaranteed loan interest rates be in 2023? While not set in stone, recent rate announcements provide insight into what rates applicants can expect this year.

Overview of USDA Guaranteed Loan Programs

Before diving into projected rates for 2023 let’s look at the different loan programs available through USDA

• Farm Operating Loans – Help producers pay for normal operating expenses like livestock, feed, equipment, and repairs. Offered for 1-7 years with flexible repayment schedules.

• Farm Ownership Loans – Allow buyers to purchase or expand a family farm or ranch, Long-term financing up to 40 years with low down payments

• Farm Microloans – Provide smaller loan amounts to niche, small-scale farms. Simplified application focused on operating expenses.

• Single Family Housing Loans – Assist low-income rural homebuyers in purchasing, building, improving, or relocating a residence. Favorable fixed rates and 100% financing.

Each loan program serves a different need for farmers, ranchers, and rural residents. USDA provides guarantees on these loans made by private lenders to reduce risk and encourage affordable financing.

USDA Guaranteed Loan Interest Rates

USDA does not set guaranteed loan rates directly. Instead they are negotiated between borrowers and individual lenders based on current market conditions. However, USDA does publish periodic national average rates to give prospective borrowers an idea of general rate ranges.

Here are the current published rates as of May 2023:

• Farm Operating Loans – 4.875%

• Farm Ownership Loans – 5.000%

• Single Family Housing Loans – 4.75% (30 year fixed)

These averages can fluctuate monthly based on bond market activity and other economic factors. Rates for 30-year mortgages usually align closely with conventional conforming loan rates.

Farm Operating and Ownership loans will see more variability in rate ranges offered by lenders. A borrower’s financial position and creditworthiness will also impact what rates lenders can offer.

So while helpful benchmarks, USDA’s posted average rates won’t match perfectly with the exact rate an individual applicant will pay.

Projecting 2023 USDA Guaranteed Loan Interest Rates

Forecasting future rate movement is challenging in the current rising rate environment. But looking at recent trends can provide clues on what USDA borrowers may face for the remainder of 2023.

In December 2022, the published USDA rates were:

• Farm Operating Loans: 5.750%
• Farm Ownership Loans: 5.875%

Compared to May 2023, Operating and Ownership loans rose over 0.75%. This matches the broader rate increases seen in other loan markets in recent months.

The expectation is that the Federal Reserve will continue raising their Fed Funds rate through 2023 to combat inflation. This will likely lead to further modest increases in USDA operating and ownership loan rates as we move through the year.

On 30-year fixed mortgages, the USDA Single Family Housing loan rate moved up from 4.5% to 4.75% from December 2022 to May 2023. Again, further Fed rate hikes could push this average closer to 5% or higher in coming months.

While not ideal for borrowers, the overall rate environment still remains relatively favorable by historical standards. Applicants who secure guarantees early in 2023 before more Fed hikes will likely get the most attractive rates.

How Rising Rates Impact Borrowers

Higher interest rates on USDA guaranteed loans in 2023 will affect farmers, ranchers and rural homeowners in a few key ways:

• Higher Monthly Payments – Principal and interest payments will increase compared to recent years when rates were lower. This will impact cash flow that borrowers need to sustain operations.

• Reduced Buying Power – Buyers will see their budget for purchases decrease as rate rises. A $250,000 loan at 4% has the same monthly payment as a $227,000 loan at 5% interest.

• Loan Refinancing – It becomes harder to justify refinancing existing mortgages and loans as the rate incentive to lower payments shrinks.

On the positive side, approval requirements and down payment options for guaranteed loans are designed to remain consistent regardless of rate movements. Low-income applicants can still access credit, albeit at higher cost.

Borrowers should be proactive about securing guarantees and rate locks early before more increases, and also budget carefully for larger payments. Consulting with USDA lenders will help applicants adjust to market changes.

Strategies for Getting the Lowest USDA Rate

While forecasts point to moderately higher rates for USDA loans in 2023, borrowers aren’t necessarily stuck paying the highest averages. Here are tips on securing a lower rate with your lender:

• Shop multiple lenders – Compare rates and fees to find the best deals. Consider banks, credit unions, and online lenders.

• Improve your credit – Anything above a 720 FICO score offers ideal rates. Pay down debts and resolve errors to boost your profile.

• Lower your DTI – Keep debt obligations below 43% of income. Reduce other loan balances before applying.

• Consider points – Paying points upfront can lower your interest rate over the life of the loan.

• Lock early – Locking in your rate at application protects you if rates rise during processing.

• Communicate needs – Discuss cash flow needs and timing flexibility with lenders to tailor options.

With preparation and an understanding of the process, applicants can still get loan rates and terms that reasonably fit their budget in the current environment.

The Outlook for USDA Rates Moving Forward

Based on current projections, USDA guaranteed loan borrowers should plan for interest rates to rise moderately as we move through 2023. Much depends on how aggressively the Federal Reserve combats inflationary pressure this year and next.

Farmers, ranchers and rural homebuyers are encouraged to start the loan process early to lock in the most favorable rates before further increases. Working with experienced USDA lenders can provide guidance on optimizing budgeting and cash flow as rates adjust.

While applicants will lose some purchasing power, guaranteed loan programs remain designed to promote access to affordable rural credit even in periods of tighter monetary policy. With practical planning and preparation, borrowers can still achieve their goals of farm ownership, improvements, and housing stability assisted by the dependable support of USDA guaranteed financing.