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USDA Guide

Do USDA Loans Require Mortgage Insurance?

USDA loans do not use traditional PMI or FHA MIP. Instead, they charge a USDA guarantee fee — currently about 1% upfront (often financed into the loan) and 0.35% annual on the outstanding balance, which is typically lower than FHA mortgage insurance.

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How the USDA Guarantee Fee Works

Two pieces make up the fee — an upfront charge and a smaller annual fee paid monthly. Here is how each one works on a typical Guaranteed loan.

Upfront fee (~1%)

Currently about 1% of the loan amount. Most borrowers finance it into the loan so they do not write a check at closing — which keeps cash to close closer to true zero-down USDA.

Annual fee (0.35%)

About 0.35% of the outstanding loan balance, paid monthly as part of your payment. It typically declines as you pay down principal.

Financed vs paid at closing

Financing the upfront fee raises the loan balance slightly but protects cash. Paying it at closing keeps the balance lower if you have funds available.

Why it exists

The guarantee fee backs the USDA guarantee to lenders — so they can offer 100% financing in eligible areas. It is the program’s version of mortgage insurance, not traditional PMI or FHA MIP.

USDA Fee vs FHA MIP

Both programs charge insurance-like costs — but the structures differ. USDA’s annual piece is often cheaper than FHA MIP, while conventional PMI can drop once you hit 20% equity.

  • USDA: ~1% upfront (often financed) + ~0.35% annual on the balance
  • FHA: upfront MIP plus annual MIP that is often higher than USDA’s annual fee
  • On many files, USDA’s MI-like costs come out lower than FHA over the same term
  • Conventional PMI can cancel at ~20% equity — USDA’s annual fee typically stays for the life of the loan

Which Costs Less?

USDA often wins on monthly MI-like costs versus FHA — especially when you qualify for zero down in an eligible area. Conventional can win later if you build equity and cancel PMI.

  • Compare total monthly payment, not just the rate quote
  • Factor financed upfront fees into the loan balance
  • Ask how long FHA MIP lasts on your down-payment scenario
  • Weigh conventional PMI cancellation if you can put more down

What This Means for Your Payment

The guarantee fee shows up in your monthly payment and, if not financed, in cash to close. Here’s how to think about it before you apply.

Step 1

Monthly impact

The 0.35% annual fee is divided across 12 months and added to principal and interest — usually a smaller line item than FHA annual MIP.

Step 2

Cash to close

If you finance the ~1% upfront fee, you avoid a large check at closing. Paying it in cash keeps the loan balance lower.

Step 3

Run the calculator

Side-by-side USDA vs FHA vs conventional quotes show the real payment difference — rate alone does not tell the story.

Step 4

When others win

FHA or conventional may still fit better if you are outside an eligible area, over income limits, or can cancel PMI after building equity.

Keep Exploring

Related guides to help you compare options and move toward pre-approval.

Are USDA Loans Really Zero Down?

What $0 down means — and what cash to close still looks like.

What Is a USDA Loan?

How the USDA Guaranteed program works end to end.

FHA Mortgage Insurance

How FHA upfront and annual MIP compare to USDA’s guarantee fee.

USDA Loans Overview

Requirements, calculator, and program details.

2MG Daily

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Recent articles from our blog on USDA loans, rural eligibility, and zero-down financing.

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Frequently Asked Questions

Do USDA loans require mortgage insurance?

USDA loans do not use traditional PMI or FHA MIP. Instead, they charge a USDA guarantee fee — currently about 1% upfront and 0.35% annual on the outstanding balance.

Can the upfront guarantee fee be financed?

Yes — most borrowers roll the ~1% upfront guarantee fee into the loan amount so cash to close stays low. You can also pay it at closing if you prefer a smaller loan balance.

Is the USDA fee lower than FHA MIP?

Usually yes on the annual piece — USDA’s 0.35% annual fee is typically lower than FHA’s annual MIP. FHA MIP is often higher and may last for the life of the loan on many low-down files.

Does the annual fee go away?

The annual guarantee fee typically lasts for the life of the USDA loan while the guarantee is in place. Refinancing into a conventional or other program may remove it once you leave USDA.

See Your USDA Payment With the Guarantee Fee

We will run the numbers on upfront and annual fees — and compare USDA to FHA and conventional for your scenario.

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