USDA Guarantee Fees Explained: The 1% and 0.35% That Replace PMI

USDA loans don't have PMI, but they have two guarantee fees that function similarly: a 1% upfront fee (rolled into the loan) and a 0.35% annual fee (paid monthly). Both are noticeably cheaper than FHA's mortgage insurance, which is a big part of why USDA is often the lowest-cost loan available.

The upfront guarantee fee (1%)

At closing you pay a one-time upfront fee of 1% of the loan amount. On a $250,000 loan, that's $2,500. You don't pay it out of pocket, it's rolled into your balance, so a $250,000 loan becomes $252,500 financed. Compare to FHA's 1.75% upfront MIP, and USDA is cheaper at the starting line.

The annual fee (0.35%)

The annual fee is 0.35% of the loan balance, divided into 12 monthly payments, functioning like PMI. On a $250,000 loan, that's roughly $875 in year one, about $73 a month. Because it's calculated on the declining balance, the dollar amount drops slightly every year. FHA's comparable annual MIP is 0.55%, and conventional PMI often runs 1%+, so USDA's 0.35% is the lowest of the three. You can run the monthly cost on your own numbers to see the difference on your price point.

The catch: it lasts the life of the loan

Like FHA MIP, the USDA annual fee doesn't cancel automatically at 20% equity the way conventional PMI does. It stays for the life of the loan. The only way to eliminate it is refinancing into a conventional loan once you've built at least 20% equity. For a buyer planning to stay 30 years, that's an annual fee the whole time, though on a shrinking balance and at the lowest rate of any comparable program.

Why it's still the cheapest option

Even with a life-of-loan fee, USDA typically costs less than FHA over time because both fees are lower. On a $250,000 loan, a USDA borrower's total monthly cost runs meaningfully below FHA's, and the gap compounds. Add zero down payment, and for a buyer who qualifies on income and location, USDA is usually the most cost-effective mortgage available.

The fee is locked at closing

The fee structure in effect when you close applies for the life of your loan. USDA reviews these each federal fiscal year (October-September), but once you close, it's set. For loans closing now, the structure is 1% upfront and 0.35% annual.

Verified as of 2026. Fee percentages are reviewed each federal fiscal year and refreshed here annually.