Buying your first home is an exciting milestone but the process can also be daunting, especially when navigating the complex mortgage world. This is where a USDA guaranteed loan can help make homeownership more accessible and affordable for eligible borrowers in rural areas.
In this comprehensive guide we’ll walk you through everything you need to know about USDA guaranteed loans including how to use the USDA guaranteed loan calculator to estimate your monthly payments.
What is a USDA Guaranteed Loan?
USDA guaranteed loans are government-backed mortgages aimed at helping low- to moderate-income borrowers in rural communities purchase homes.
These loans are issued by approved private lenders and guaranteed – or insured – against default by the United States Department of Agriculture (USDA), This guarantee allows lenders to provide more flexible underwriting and lower interest rates than conventional mortgages
Some key features of USDA guaranteed loans include:
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100% financing – No down payment is required. The USDA guarantee removes the need for mortgage insurance.
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Low interest rates – USDA guaranteed loans often have lower interest rates compared to other loan programs.
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Flexible credit guidelines – There is no minimum credit score requirement. Your credit history will be reviewed as part of the application.
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Low monthly fees – A 1% upfront guarantee fee and 0.35% annual fee is charged, rolled into the loan amount.
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Fixed rates – USDA guaranteed loans have fixed interest rates for the life of the loan, helping keep payments affordable.
USDA Guaranteed Loan Eligibility
To be eligible for a USDA guaranteed loan, you must meet certain requirements:
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Your household income must be within the income limits set for your area. Income thresholds vary but are typically up to 115% of the median income for the area.
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The home you wish to purchase must be located in an eligible rural area as defined by the USDA property eligibility tool.
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You must be unable to secure financing from other lenders at reasonable rates and terms.
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The home must be used as your primary residence.
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And meet other requirements related to legal capacity, creditworthiness and citizenship/immigrant status.
How To Use The USDA Guaranteed Loan Calculator
The USDA guaranteed loan calculator allows you to estimate your monthly mortgage payments based on your loan amount, interest rate, loan term and fees.
Follow these steps:
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Enter the home purchase price – This is the sale price of the home you want to buy. It determines the loan amount you need.
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Input your down payment – USDA guaranteed loans do not require a down payment, but any funds you put down will lower the loan amount and monthly payments.
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Select your interest rate – Rates for USDA guaranteed loans currently range from around 3.25% to 6%. Enter your estimated rate based on current averages and your credit score.
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Choose your loan term – Loan terms of 30 years or less are available. The longer the term, the lower the monthly payment.
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Input fees – The 1% upfront guarantee fee and 0.35% annual fee will be calculated for you based on your loan amount and term.
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Review monthly payment estimate – Your estimated principal, interest, and fees will be calculated and displayed. This gives you an idea of the monthly payments.
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Adjust inputs to fit your budget – Try adjusting the down payment, loan term and other inputs to align with what you can afford.
What Other Costs Are Involved?
When budgeting for a USDA guaranteed loan, there are other costs to factor in beyond just principal, interest and fees:
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Closing costs – These fees pay for loan processing, appraisals, credit checks and other closing services. They typically range from 3% to 6% of the total loan amount.
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Property taxes and insurance – Lenders will require you to pay property taxes and homeowner’s insurance as part of your monthly mortgage payments.
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Upfront guarantee fee – This 1% fee can be financed into your loan amount rather than paid upfront if needed.
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Inspections and appraisal – You will need to cover the costs of inspections, appraisal and other costs associated with the home buying process.
Is A USDA Guaranteed Loan Right For Me?
If you’re a low- or moderate-income borrower struggling to buy a home in a rural area, a USDA guaranteed loan can make financing more accessible. The no down payment option, low rates and flexible credit guidelines help eligible borrowers overcome the biggest barriers to homeownership.
Be sure to use the USDA guaranteed loan calculator to get an estimate of your monthly payments and see if the loan fits your budget. Get pre-qualified to confirm your eligibility and interest rate. And consult a loan officer to discuss the costs, your home buying options, and steps to get started with the process.
The USDA guaranteed loan program provides a great opportunity for rural residents to finally achieve the dream of homeownership.
Comparing USDA Loans & Conventional Mortgages
On regular conventional conforming mortgages, private banks offer funding and typically prefer borrowers that pay 20% down payment of the home’s value. This minimizes the risk of loss to the lender in case a foreclosure takes place. If the borrower pays less than 20% down, they are required to pay private mortgage insurance (PMI). Once the loan balance to home value (LTV) falls below 80%, PMI is automatically cancelled.
On the other hand, USDA loans do not require a down payment, but they are associated with mortgage insurance premium (MIP), which come in two important fees. One is an upfront USDA guarantee fee, and the other is an annual fee which functions similarly to PMI. The upfront fee can be rolled into the loan.
Periodically the fees associated with a USDA loan change to reflect the costs of running the program. The last major change was announced on September 1, 2016, when the upfront guarantee fee dropped from 2.75% to 1%, and the annual fee was lowered from 0.5% to 0.35%. Both the upfront funding fee and the annual insurance premium are far cheaper on USDA loans than the equivalent FHA loan fees.
The following table highlights the cost of these fees on a $250,000 home:
| Fee Type | Upfront Fee | Annual Fee |
|---|---|---|
| Rate | 1.0% | 0.35% |
| Upfront Amount | $2,500 rolled into loan | $0 |
| Annual Amount | $0 | $875.00 |
| Equivalent Monthly Amount | $0 | $72.92 |
As the principal balance is reduced, the associated monthly amount declines.
For example, for a $250,000 loan, your upfront guarantee fee will cost $2,500. If your principal decreases to $230,000, your annual guarantee fee will cost $805, which is $67.84 per month. As your principal balance is reduced, your annual guarantee fee also decreases. The annual guarantee fee is required for the entire life of the loan.
To summarize the difference between USDA loans and conventional loans, we made the table below:
| Qualifications | USDA Loans | Conventional Loans |
|---|---|---|
| Required Area | Must be a USDA rural area | Choose a home location anywhere |
| Income Limit | Your household income cannot exceed 115% of the median income in your area | Does not impose income limits |
| Credit Score | Should be at least 640 Some accept as low as 620 | 680 & up is usually approved 700 & up is ideal |
| Rates | Comes with lower rates because of federal funding | You can obtain a lower rate with a higher credit score Making a high down payment helps decrease your rate |
| Down Payment | Not required Offers 100% financing | 20% eliminates PMI 10% is the average down payment 3% required minimum for a 97-3 loan |
| Front-end DTI | Should not go over 29% | Should not go over 28% |
| Back-end DTI | Should not go over 41% | Usually does not go over 43% With compensating factors, can be up to 50% |
| Cost | 1% upfront guarantee fee 0.35% annual guarantee fee Does not require prepayment penalty | PMI costs in 0.5%-1% of the loan amount annually PMI is cancelled when mortgage balance is below 80% May require prepayment penalty |
Current Local Mortgage Rates
Here is a table listing current Denver mortgage rates.
The following table shows current 30-year mortgage rates available in Denver. You can use the menus to select other loan durations, alter the loan amount, or change your location.
USDA Mortgage Calculator: Here’s how to CORRECTLY calculate a USDA monthly payment
FAQ
How to calculate the USDA guarantee fee?
What is the debt to income ratio for a USDA guaranteed loan?
How is the maximum loan amount calculated in USDA?
How to calculate guarantee fee?
Does a USDA mortgage calculator include a guarantee fee?
The Mortgage calculator for USDA loans has an option to include the guarantee fee. For a conventional loan, there is an insurance called private mortgage insurance or PMI when your down payment is less than 20%. For USDA mortgages, there is something similar to PMI called the USDA guarantee fee and USDA mortgage insurance.
What is a USDA loan calculator?
Our USDA loan calculator helps you estimate your monthly mortgage payments, including taxes and insurance, to give you a better idea of what to expect when financing your home purchase using the USDA loan program.
What is a USDA payment calculator?
The USDA payment calculator has the option to change the funding fees and insurance to reflect your mortgage. This is a USDA home loan calculator, check out our advanced mortgage calculator if you need to calculate mortgage payments for conventional loans. Following are the definitions and terms for the USDA loan calculator.
What is a USDA mortgage amount?
USDA Mortgage Amount. This is amount of the USDA loan you are seeking. The larger your mortgage, the greater your monthly payment and other costs such as USDA mortgage insurance. Interest Rate. This is the mortgage rate you pay on your loan.
How is the USDA upfront guarantee fee calculated?
The USDA upfront guarantee fee is calculated as 1% of your total loan amount. Our mortgage calculator assumes you are rolling this fee into your final loan amount, but you have the option to pay the fee upfront at closing.
What is USDA loan calculator with amortization schedule?
USDA Loan Calculator with amortization schedule is used to calculate your monthly mortgage payment for your USDA loan. The USDA mortgage calculator has everything you need to learn about your monthly mortgage and payments. USDA Loan Calculator with amortization schedule is used to calculate your monthly mortgage payment for your USDA loan.