USDA guarantee fees: What are they and how do they work?

The U.S. Department of Agriculture loans help low- to mid-income borrowers buy homes in designated rural areas. Rocket Mortgage® doesn't currently offer USDA loans, but we want to help you understand all your borrowing options for buying a home. Among the specific requirements for a USDA loan is the guarantee fee, which helps fund the program and keep it running. If you're thinking about buying a home with a USDA loan, it's important to know how the USDA guarantee fee works and how much you can expect to pay.

What is a USDA guarantee fee?

The guarantee fee on a USDA loan helps the agency continue to insure mortgages. The agency does so by insuring mortgages that meet its requirements, thereby reducing the risk private lenders take when making USDA loans. That's how USDA loans can help low- to mid-income borrowers buy a home with no down payment requirement.

Typically, lenders pass the guarantee fee cost to borrowers and roll it into the loan. The fee is like mortgage insurance, and comparable to the mortgage insurance cost on FHA loans or the private mortgage insurance buyers pay on conventional loans when they put down less than 20%.

There are two types of USDA fees: the up-front guarantee fee and the annual fee.

Up-front guarantee fee

The up-front guarantee fee is paid at closing. As of 2025, this fee is 1% of the loan amount, though that rate can change every fiscal year. It’s essentially the price of having the government guarantee your loan.

As the borrower, you will typically owe this as part of your closing costs, though it can be rolled into the total loan amount in some cases.

Annual USDA loan fee

The annual USDA loan fee is an ongoing fee that supports the USDA loan program. As of 2025, the annual fee is 0.35% of the remaining loan balance. The annual fee typically is divided into monthly installments and added to your monthly mortgage payment. The amount you pay will decrease as you pay down your mortgage balance.

More about USDA loans

Because USDA loans are backed by the government, the USDA guarantees part of each loan. That protection reduces lenders' risk, and if the borrower defaults, USDA reimburses the lender for some of its loss.

You don’t borrow directly from the government. Instead, you work with a USDA-approved lender, such as a bank, credit union, or mortgage company.

These loans are specifically geared toward rural development. To qualify, the home must be in a USDA-eligible area with a population under 35,000. This focus on smaller communities is what sets USDA apart from other government-backed mortgages, such as FHA and VA loans.

If you’re curious whether a specific address qualifies, you can check the official USDA Property Eligibility Map. Enter a ZIP code or a property address to see if it's in an eligible area.

Types of USDA loans

There are two types of USDA home loans: The USDA guaranteed loan and the direct loan. Both require you to pay the guarantee fee. The right one for you depends on your income and how you plan to finance the home.

• USDA guaranteed loan: This program is designed for low- to moderate-income borrowers who work with an approved lender. The USDA guarantees part of the loan, which helps the borrower qualify with no down payment and competitive interest rates.
• USDA direct loan: This option is for very-low- and low-income borrowers who need more flexible terms. Instead of going through a lender, you borrow directly from the USDA. These loans often include payment assistance to make monthly payments more affordable.

The bottom line: USDA home loans and guarantee fees

USDA loans enable low- to mid-income borrowers to buy or build a home in rural areas with no down payment. But to keep this program running, borrowers pay a guarantee fee that helps cover its costs. The fee includes a one-time up-front charge and an annual fee built into your monthly mortgage payments.

Rocket Mortgage doesn’t offer USDA loans, but you can start the application process to find the right financing for your new home.