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USDA Guarantee Fee

Reviewed by: David Naimey

Approved by: Chad Turner

What Is The USDA Guarantee Fee?

The USDA guarantee fee is a crucial component of USDA home loans, designed to facilitate 100% financing for eligible borrowers in designated rural areas. It consists of two main parts: the upfront guarantee fee and the annual USDA loan fee.

Upfront Guarantee Fee

The upfront guarantee fee, typically around 2% of the loan amount, is rolled into the loan itself. This fee serves as insurance for the USDA against potential defaults and allows borrowers to obtain financing without the need for a down payment. By incorporating the fee into the loan, borrowers can avoid upfront out-of-pocket expenses, making homeownership more accessible, especially for first-time buyers with limited savings.

Annual USDA Loan Fee

In addition to the upfront guarantee fee, USDA home loans also entail an annual fee, calculated based on the remaining principal balance of the loan. This fee is paid monthly and is akin to mortgage insurance premiums on other loan programs. However, USDA loan fees tend to be lower than those of comparable conventional loans, further enhancing affordability for borrowers.

USDA Loan Terms and Rates

For more info on applying for USDA loans, borrowers can contact their local housing authority. It’s important to note that the terms and rates of USDA loans may vary by state, so prospective buyers should inquire about the specifics in their area. Additionally, borrowers should be aware that their monthly payment may be adjusted annually based on changes in the interest rate or loan type. Overall, USDA loans represent a valuable housing opportunity for those who meet the eligibility criteria.

Promoting Equal Housing Opportunity

To ensure equal housing opportunity, USDA loans are available to borrowers regardless of race, color, religion, sex, handicap, familial status, or national origin. The USDA loan guarantee program aims to provide affordable financing options to low and moderate-income individuals and families, helping them achieve their dream of homeownership. Eligibility for USDA loans is often based on factors such as the borrower’s median income compared to the median income in the area and their ability to make the required mortgage payment.

Mortgage Application Process

Prospective home buyers can start the mortgage application process by contacting approved USDA lenders or by visiting the USDA Department of Agriculture website for more information on eligibility requirements and loan programs. Through USDA loans, many families have been able to buy a home and build financial stability for the future.


USDA home loans, with their 100% financing option and relatively low guarantee fees, offer an attractive pathway to homeownership, especially for individuals and families in rural areas. The upfront guarantee fee, incorporated into the loan amount, eliminates the need for a down payment, while the annual fee helps mitigate risk for the USDA. Together, these fees make USDA home loans a cost-effective and accessible choice for eligible borrowers seeking to purchase homes in rural communities.


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