Do USDA Loans Have PMI?
Think of a USDA loan as a helping hand from the government to make homeownership possible in places where big city prices haven’t taken over. It’s a mortgage option backed by the U.S. Department of Agriculture, designed for people who want to live outside urban areas — whether that's a quiet suburb, a small town, or the open countryside. The best part? It often comes with zero down payment, low interest rates, and more flexible credit requirements. In short, it's a home loan built to support everyday folks chasing the dream of a front porch and a backyard, not a skyline view.
Homebuyers who can't put down a sizable down payment with a conventional loan will often need to pay for PMI, or private mortgage insurance. This insurance is designed to protect the lender in the event you default on your loan.
For conventional loans, you’ll typically need to pay for PMI unless you can put down 20% of the purchase price. You can cancel PMI for conventional loans once you’ve paid off at least 20% of the loan value.
"USDA loans don’t have PMI. But these specialized loans require two different forms of mortgage insurance — an upfront guarantee fee and an annual fee that serves as the monthly mortgage insurance premium," said Sam Sexauer of Neighbors Bank. "Despite having two fees, the total costs of USDA mortgage insurance are often significantly lower than other loan options."
In fact, mortgage insurance costs on FHA and conventional loans can be double or even triple those of USDA mortgages, posing a serious barrier for low-income and cash-strapped buyers.
USDA mortgage insurance is paid via two fees — an upfront guarantee fee that’s 1% of the loan amount, and an annual fee that’s 0.35% of the loan amount.
The one-time upfront guarantee fee, which is also referred to as the USDA funding fee, is paid at closing and typically financed into the loan.
The annual fee is lumped into your monthly payment and is paid for the life of the loan.
USDA mortgages have the lowest funding fee of all government-issued loan products. The guarantee fee for USDA loans is 1% of the total financed amount – meaning the total balance of the loan, not the sales price of the property.
Take a look at how the USDA funding fee compares to a $250,000 mortgage:
| Loan Type | Funding Fee Rate | Estimated Upfront Costs |
|---|---|---|
| USDA | 1% Upfront Funding Fee | $2,500 |
| FHA | 1.75% Upfront Funding Fee | $4,375 |
| VA | 2.15% Upfront Funding Fee | $5,375 |
In the scenario above, if you decided to pay a $10,000 down payment on your USDA loan that would lower your loan amount to $240,000 and your guarantee fee to $2,400. The funding fee for VA loans varies based on several factors, such as nature of service, down payment and first-time use. For example, the funding fee drops to 1.5% if you make a down payment of 5% or more and 1.25% if you make a down payment of 10% or more.
The calculation above uses the most common funding fee rate for first-time use. Conventional loans do not have an upfront fee.
In addition to the USDA origination fee, you will also have an annual fee of 0.35% of the loan’s balance. The annual fee is calculated annually, but paid monthly as part of your monthly mortgage payment. The annual fee is paid for the life of the loan, unlike private mortgage insurance (PMI) on conventional loans, which can be canceled once sufficient equity is built.
USDA loan annual fees are recalculated at the anniversary of the loan's closing date every year, then spread evenly out in 12 equal payments.
Here's an example of how to calculate your USDA annual fee:
| Base Loan Amount |
|---|
| Funding Fee |
| Total Loan Amount = Base Loan Amount + Funding Fee |
| Annual Fee = Total Loan Amount x 0.35 percent |
| Monthly Payment = Annual Fee / 12 |
Annual fees for USDA and FHA loans are paid for the life of the mortgage, while VA loans only require the upfront funding fee.
Check Official USDA Loan Requirements
Contact a home loan specialist here to determine if you're eligible. →Annual fees for USDA and FHA loans are paid for the life of the mortgage, while VA loans only require the upfront funding fee.
Let’s say you take out a $200,000 USDA loan with a 30-year term and a 6.5% interest rate.
So, your total monthly mortgage payment would be around $1,322 — before adding taxes and homeowners insurance.
This modest fee helps keep USDA loans sustainable while still offering major benefits like no down payment and competitive rates.
Private mortgage insurance rates vary by loan product, down payment, credit score and other factors. Generally, PMI costs range anywhere from 0.5% to 1.5% of the loan amount. According to Freddie Mac, you can expect to pay between $30 and $70 per month for every $100,000 borrowed.
The annual mortgage insurance premium for most FHA loans is 0.55%.
Here's a look at how those annual mortgage insurance costs stack up for new homebuyers, based on a typical $250,000 loan:
| Loan Type | Monthly Mortgage Insurance Cost |
|---|---|
| USDA | $73.64 |
| FHA | $114.58 |
| Conventional | $197.92 |
With low mortgage insurance costs, no down payment requirements and less stringent income and credit requirements, USDA loans open the door to homeownership for many who have previously been shut out.
To learn more about mortgage insurance on USDA loans and your eligibility, contact a home loan specialist today.
To qualify for a USDA loan, you’ll need to meet a few key requirements:
