USDA loans are much the same as other government-backed mortgages in that they require a one-time guarantee fee and annual (monthly) costs. The USDA loan guarantee & annual fee schedule for 2023 has remained unchanged from last year. Let’s break down the current fee chart and provide some valuable insight for prospective home buyers.
The primary draw to USDA Rural Housing mortgages is they still offer 100% financing for eligible buyers. This is especially important for many first-time home buyers that may be restricted from purchasing a home due to the large down payment many programs require.
Many homebuyers are still unaware of this program and the many benefits USDA loans provide. USDA loans do follow a few key factors when determining eligibility, mainly the property location and the household income. Buyers can read more about the latest 2023 USDA requirements here.
USDA Guarantee Fee 2023:
According to USDA, the upfront guarantee fee and annual fee coexist in an effort to ensure the guaranteed loan
the program remains subsidy neutral. Subsidy neutral means the guaranteed loan program pays for program losses through the fees that are collected, and not from taxpayer-provided funds. Each fiscal year (October) the upfront guarantee fee and annual fee may change depending on program needs.
All the most popular government-backed loan programs require some form of this one-time fee. USDA refers to this as a Guarantee Fee. FHA calls this Mortgage Insurance Premium (MIP), and VA refers to this as a Funding Fee. Although they all have different names, they are basically the same thing.
The cost of the upfront USDA guarantee fee is 1% of the loan balance. Buyers always have the opportunity to include (roll in) this fee in their final loan amount, or just pay for it out of pocket. An example of the funding fee calculation is listed below:
- Homebuyer decides to purchase a home for $250,000 with no down payment. So the 1% funding fee would be based on the full amount. In this case, the one-time fee added to the loan will be $2,500 and the final adjusted loan amount would be $252,500.
Note, if a buyer decided to roll in their closing costs into their mortgage, the fee would be based on the final loan amount plus the closing costs. Example: The purchase price of the home is $250,000. The buyer wants to include $5,000 in closing costs. The final loan amount is $255,000 – the 1% guarantee fee will be based on this loan amount.
USDA Annual Fee- Monthly Mortgage Insurance:
In addition to the upfront guarantee fee, USDA loans also have an Annual Fee. This annual fee is paid out in monthly installments over the life of the loan. It’s important to understand even though it says “Annual” the fee is paid out on a monthly basis, similar to private monthly mortgage insurance or PMI.
Assuming homeowners meet the qualifying requirements, they can remove this USDA annual fee from their loan by refinancing it into a conventional mortgage once their loan to value is less than 80%. So it’s important to keep track of your loan balance and the current market value of your home as you pay down your mortgage lower.
Since October 2016, the USDA annual fee amount has been 0.35% of the outstanding mortgage balance. This amount is divided into 12 payments.
Here is an example for a home buyer that has a $250,000 loan balance:
$250,000.00 x 0035 = $875.00
$875.00 / 12 = $72.91 per month
The $72.91 in this example will be included in the regular principal & interest payment, along with the escrow for taxes and homeowners insurance. The following year, a new calculation will be performed with the updated loan balance.
|USDA Up-Front Guarantee Fee 2023|
|USDA Annual Fee 2023|
*Note for home buyers already pre-approved for an FHA: Not only does USDA provide 100% financing, but the monthly mortgage insurance is more than half the cost when compared to FHA loans. It’s important to be mindful of this when comparing your financing options. If you are purchasing your home in USDA eligible location, and have a household income within the limits, you may want to consider USDA financing.
Homebuyers can use the USDA mortgage calculator on this page to help figure out the annual fee amount. Just be sure to add 1% to your loan amount to compensate for the one-time guarantee fee. If you have questions or want to learn more about applying, please connect with us today! Call Ph: 800-743-7556 or just submit the Info Request Form on this page.