A USDA guaranteed mortgage can finance an eligible purchase without a required down payment, but it still has program fees. The upfront fee can increase the starting debt. The annual fee adds a recurring expense. Closing costs and prepaid items are another part of the budget.
This guide addresses the Single Family Housing Guaranteed Loan Program, not USDA's separate direct loan program.
Two parts
Upfront fee: 1% of the loan amount. It's almost always added to the loan rather than paid in cash.** Annual fee:** 0.35% of the loan balance per year, divided into your monthly payment.
USDA sets these each fiscal year. They've held at these levels through the current cycle.
Estimate your USDA guarantee fee
Estimate using the current 1% upfront and 0.35% annual fees.
USDA vs FHA over 10 years
On a $300,000 loan, USDA's upfront fee is about $3,000 and its annual fee starts around $1,050 a year. FHA's upfront premium is about $5,250 and its annual premium starts around $1,650 a year. Over ten years, before counting the slow paydown of the balance, that's roughly $13,500 in USDA fees versus about $21,750 for FHA. A difference of about $8,000 for the same home.
The calculator above shows the same comparison for your loan amount.
How long it lasts
The annual fee lasts for the life of the loan. Unlike conventional mortgage insurance, it doesn't drop off as you build equity. The way out is refinancing into a different loan type once you have enough equity, though many USDA borrowers keep the loan because the fee is so low.
How it compares
| Upfront | Annual | |
|---|---|---|
| USDA | 1% | 0.35% |
| FHA | 1.75% | 0.55% for most |
| VA | Funding fee, often waived for disabled veterans | None |
| Conventional | None usually | Varies, removable |
For a buyer who qualifies, USDA's fees are typically lower than FHA's, both upfront and monthly.
Choosing USDA over FHA
Renee qualified for both USDA and FHA on a home in an eligible area near Groveland. Her loan officer ran the fees side by side.
USDA's lower upfront fee and smaller monthly fee saved her about $50 a month and several thousand dollars over the first decade, with no down payment.
Use the correct fiscal year schedule
USDA's published FY 2027 notice sets an upfront guarantee fee of 1.00% and an annual fee of 0.35% for purchase and refinance transactions. FY 2027 runs from October 1, 2026 through September 30, 2027.
The applicable program and fiscal year matter. A page that says current without identifying the schedule can become stale. Have the lender confirm the correct fee treatment for the actual transaction and commitment.
These program fees don't establish the lender's note rate, origination charges or whether the borrower and property are eligible.
Fully financing the upfront fee requires a gross up
USDA's handbook calculates the fully financed fee on the total loan including the fee. At a 1% rate, divide the eligible base amount by 0.99. Simply adding 1% of the base amount isn't the same calculation.
Hypothetical example: the eligible base loan is $300,000 before the guarantee fee. Fully financing the fee gives $300,000 divided by 0.99, or $303,030.30. One percent of that total is $3,030.30.
The base amount plus the financed fee equals the total debt. Using $3,000 instead would understate this fully financed calculation by $30.30. It is a small difference, but it illustrates why the lender should use the actual program method.
If the entire fee is paid at closing instead, a $300,000 loan at 1% has a $3,000 upfront fee. Partial financing has its own reconciliation. Ask the lender which method appears on your figures.
Financing the fee changes the monthly payment
At a hypothetical 6.25% over 30 years, $300,000 produces about $1,847 in principal and interest. The $303,030.30 fully financed amount produces about $1,866, or roughly $19 more.
That comparison excludes the annual fee, taxes, homeowners insurance and other ownership expenses. It isolates the effect of putting the upfront fee into debt.
Financing can preserve cash needed for the purchase or emergencies. Paying it in cash reduces debt. Compare both choices with the full source and reserve plan before choosing by the smaller closing check alone.
The annual fee uses scheduled balance mechanics
USDA calculates the annual fee from the applicable average scheduled unpaid principal balance. Dividing 0.35% of the opening balance by 12 is a useful rough planning estimate, not the exact servicing calculation.
On the $303,030.30 example, that simple approximation is about $88.38 a month. The actual first year amount should be taken from the lender's program calculation, because scheduled amortization affects the average.
The recurring fee isn't conventional PMI with an automatic 80% borrower cancellation rule. Review the applicable USDA loan terms and servicing treatment rather than assuming a future rise in value removes it.
Zero down and zero cash are different
An eligible borrower may have no required down payment but still need money for costs not covered through the financing or an approved contribution. Appraisal, title, recording, prepaid interest, insurance and escrow can remain.
The handbook generally limits the loan excluding the upfront guarantee fee to the applicable appraised value. Eligible closing costs can be financed only within the program's value and loan purpose limits. A purchase price that already uses the available value leaves less room for other costs.
Hypothetical example: a home is bought for $300,000 and appraises for $300,000. The fact that USDA permits financing an upfront fee doesn't automatically permit adding $8,000 of other expenses above that value. The lender must identify another eligible way to cover those costs or revise the transaction.
Compare USDA with the alternatives you actually qualify for
A conventional option may require a down payment and PMI. FHA may have upfront and annual MIP. VA may be available to an eligible borrower with different costs. The lower insurance or guarantee percentage by itself doesn't determine the best loan.
Compare base amount, financed fees, note rate, recurring insurance or fee, total housing payment and cash remaining. Also confirm USDA property location, household income and repayment eligibility. An appealing payment on an ineligible property isn't a real alternative.
Request a complete fee reconciliation
Ask for the applicable fiscal year schedule, base amount, paid or financed upfront fee, final note amount and exact monthly annual fee. Then reconcile all remaining settlement expenses with cash to close.
The useful benefit of USDA financing is a workable purchase with clear costs. It shouldn't depend on treating a financed charge as if it vanished or assuming no down payment means no money is needed.
Common questions
Can I finance the USDA guarantee fee?
Yes. It can be added to your loan.
Does the USDA annual fee ever go away?
No. It lasts for the life of the loan.
Is USDA cheaper than FHA?
Usually, because the fees are lower, but USDA has income and location limits.
How much is the USDA guarantee fee?
1% upfront, usually financed, and 0.35% a year, paid monthly.
Is the USDA fee cheaper than FHA mortgage insurance?
Yes, typically, both upfront and annually.
Can the seller pay the upfront fee?
Seller concessions can generally go toward eligible closing costs. Ask how it applies to your deal.