By |Published On: February 9, 2024|Categories: New Purchase Mortgage|
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If you’re thinking about getting a USDA loan, you might have heard about something called the “USDA funding fee.” But what exactly is it, and how does it affect you? In this comprehensive guide, we’ll break down everything you need to know about USDA funding fees, including what USDA upfront fee are, how USDA loan guarantee fee calculator work, and why USDA loan guarantee fee Are important.

What is the USDA funding fee?

The USDA funding fee, also known as the USDA upfront fee or USDA loan guarantee fee, is a one-time fee that house borrowers have to pay when they take out a USDA loan. This fee helps to fund the USDA’s Rural Development program, which provides loans to low- and moderate-income borrowers in rural areas.

Why is the USDA funding fee important?

The USDA funding fee holds significance for several reasons:

  1. Program Sustainability: It plays a vital role in sustaining the USDA’s Rural Development program by providing essential funds. Without this fee, the program’s ability to offer loans to borrowers in rural areas would be limited.
  2. Expanding Access: By collecting the funding fee, the USDA can broaden its reach and provide financial assistance to more low- and moderate-income individuals & families residing in rural communities.
  3. Risk Mitigation: The fee acts as a form of insurance for the USDA against potential loan defaults. This helps mitigate risk for the program and ensures its continued operation.
  4. Maintaining Affordability: While the funding fee adds to the upfront costs of obtaining a USDA loan, it helps keep interest rates lower for borrowers. This can make homeownership more affordable over the long term.

How much is the USDA funding fee?

The amount of the USDA funding fee varies depending on several factors:

  1. Loan Type: Whether it’s a USDA Direct Loan or a USDA Guaranteed Loan affects the fee amount.
  2. Loan Term: The length of the home loan term, such as 15 years & 30 years, influences the fee percentage.
  3. Down Payment: The size of the down payment, if any, can also impact the fee.
  4. Fee Range: Generally, the funding fee for USDA loans can range from 1% to 3.5% of the total loan amount.

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Is the USDA funding fee tax-deductible?

Unfortunately, the USDA funding fee is not tax-deductible. However, it is considered a closing cost, which means that you can include it in the total cost of buying your home when you calculate your mortgage interest deduction.

How do you calculate USDA funding fee?

Calculating the USDA funding fee involves several steps and considerations. Here’s a detailed explanation of how it’s done:

  1. Determine Loan Type: First, identify whether you’re applying for a USDA Direct Loan or a USDA Guaranteed Loan. Each type may have different funding fee structures.
  2. Understand Loan Amount: Know the total loan amount you’re borrowing. This includes the principal amount plus any additional fees or costs financed into the loan.
  3. Identify Fee Percentage: Refer to the USDA’s official guidelines or consult your lender to determine the applicable funding fee percentage based on the type of loan, term, and down payment (if applicable). This percentage typically falls within a range such as 1% to 3.5%.
  4. Calculate Fee Amount: Multiply the total loan amount by the funding fee percentage. For example, if the funding fee percentage is 2% and your loan amount is $150,000, the calculation would be: $150,000 x 0.02 = $3,000.
  5. Adjust for Down Payment (if applicable): If you’re making a down payment on a USDA Guaranteed Loan, the funding fee percentage may be lower. Be sure to use the correct percentage based on the down payment amount.
  6. Consider Financing Options: Decide whether to pay the funding fee upfront at closing or finance it into the loan amount. If you choose to finance the fee, remember that it will increase the total amount borrowed and affect your monthly payments and overall loan cost.
  7. Use Online Calculators or Consult Your Lender: To simplify the process, you can utilize online USDA funding fee calculators. These tools often allow you to input specific loan details and receive an accurate estimate of the funding fee amount. Additionally, your lender can provide personalized guidance and calculations based on your individual circumstances.

What are the different types of USDA loans?

The USDA offers several types of loans tailored to meet the diverse mortgage needs of borrowers in rural areas. Here are the main types of USDA loans:

  1. USDA Direct Loans: These loans are provided directly by the USDA to low- and very low-income borrowers. They aim to help individuals and families who may have difficulty obtaining financing from other mortgage sources. USDA Direct Loans typically offer low interest rates and flexible terms.
  2. USDA Guaranteed Loans: Also known as USDA Rural Development Loans, these loans are offered by approved private lenders, such as banks & mortgage companies. However, they are guaranteed by the USDA, which means that the government will reimburse the lender in case the borrower defaults. USDA Guaranteed Loans are available to moderate-income borrowers and often feature competitive interest rates and flexible credit requirements.
  3. USDA Refinance Loans: USDA offers refinance options for borrowers with existing USDA loans. These refinance loans allow homeowners to replace their current USDA loan with a new loan that may offer better terms, such as a lower interest rate, reduced monthly payments, & a shorter repayment period. Refinancing can help borrowers save money over the life of the loan or improve their financial situation.

How Our Website RateChecker Can Help You

Here’s how our website “RateChecker” can help you find the best loan rates and why you should consider using it:

  1. Comprehensive Comparison: RateChecker provides a comprehensive comparison of loan rates from multiple lenders, allowing you to see all your options in one place. Instead of spending hours researching rates from different sources, RateChecker streamlines the process for you.
  2. Save Time and Effort: With RateChecker, you can save valuable time & effort by avoiding the need to visit multiple lender websites or make countless phone calls. Our platform brings together all the information you need to make an informed decision quickly and efficiently.
  3. Customized Results: RateChecker allows you to customize your search based on your specific needs & preferences. Whether you’re looking for a mortgage, auto loan, personal loan, or credit card, you can tailor your search criteria to find the best rates for your situation.
  4. Transparent Information: We believe in transparency, which is why RateChecker provides clear and easy-to-understand information about loan rates, terms, and fees. You can trust that the rates you see on our platform are accurate and up-to-date.
  5. Empowering Borrowers: RateChecker empowers borrowers by giving them the tools and information they need to make smart financial decisions. Whether you’re a first-time homebuyer & a seasoned investor, our platform equips you with the mortgage knowledge to navigate the lending landscape with confidence.
  6. Access to Expert Advice: In addition to providing rate comparisons, RateChecker offers access to expert advice and resources to help you understand the loan process better. From articles and guides to tips and FAQs, we’re here to support you every step of the way.
  7. Free to Use: Best of all, RateChecker is completely free to use. There are no hidden fees & charges – just straightforward access to the best loan rates on the market.

What are the benefits of USDA loans?

USDA loans offer numerous benefits, especially for individuals and families looking to purchase a home in rural areas. Here are some of the key advantages of USDA loans:

  1. No Down Payment Required: One of the most significant benefits of USDA loans is that they typically do not require a down payment. This can make homeownership more accessible to borrowers who may not have more significant savings for a down payment.
  2. Competitive Interest Rates: USDA loans often offer competitive interest rates compared to other loan options. These lower rates can result in lower monthly mortgage payments and save borrowers money over the life of the loan.
  3. Flexible Credit Requirements: USDA loans have more lenient credit requirements compared to conventional home loans, making them accessible to house borrowers with less-than-perfect credit histories. This flexibility can help individuals and families with lower credit scores qualify for homeownership.
  4. No Private Mortgage Insurance (PMI) Required: Unlike FHA loans and some conventional loans, USDA loans do not require house borrowers to pay private mortgage insurance. This can lead to additional savings for house borrowers by avoiding the extra monthly expense of PMI premiums.
  5. Support for Rural Communities: USDA loans are specifically designed to promote homeownership and economic development in rural areas. By offering affordable financing options, these loans help support rural communities and contribute to their growth and stability.
  6. Flexible Loan Terms: USDA loans offer flexible loan terms, allowing borrowers to choose between fixed-rate and adjustable-rate mortgages (ARMs) with various repayment periods. Borrowers can select the loan term that best fits their financial goals and preferences.
  7. Various Loan Programs Available: In addition to traditional USDA Direct and Guaranteed Loans, the USDA offers specialized loan programs, such as USDA Home Improvement Loans and USDA Refinance Loans, to meet specific needs and circumstances of borrowers.

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What are the drawbacks of USDA loans?

While USDA loans offer numerous benefits, it’s essential to consider potential drawbacks before deciding whether this type of financing is right for you. Here are some of the drawbacks associated with USDA loans:

  1. Geographic Restrictions: USDA loans are only available for properties located in eligible rural areas designated by the USDA. Borrowers looking to purchase homes in suburban or urban areas may not qualify for USDA financing.
  2. Income Limits: USDA mortgage loans have income limits based on the area’s median income. Borrowers must meet these limits to be eligible for USDA financing. Higher-income individuals & families may not qualify for USDA loans.
  3. Funding Fee: USDA loans require borrowers to pay a funding fee, which can add to overall mortgage cost of the mortgage loan. 
  4. Property Eligibility Requirements: USDA loans have strict requirements regarding the type & condition of the property being purchased. The home must meet certain standards set by the USDA, including being located in an eligible rural area and meeting minimum property requirements.
  5. Processing Time: USDA loans may take longer to process compared to conventional loans due to additional requirements and government involvement. Delays in loan processing can prolong the home buying process and impact closing timelines.
  6. Limited Loan Amounts: USDA loans have maximum loan limits based on the borrower’s income and the property’s location
  7. Resale Restrictions: USDA loans may have restrictions on selling the property within a certain timeframe or at a profit. Borrowers should be aware of these restrictions and consider their long-term plans when purchasing a home with USDA financing.


In conclusion, USDA loans offer a valuable opportunity for low- and moderate-income borrowers to achieve homeownership with little to no down payment. However, it’s important to understand the costs and requirements associated with these loans before deciding if they’re right for you. By educating yourself about the USDA funding fee and other aspects of the loan program, you can make an informed decision about whether a USDA loan is the best option for your needs.

You can trust RateChecker to help you make the most of your financial decisions.

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Maxine Dupont
About Maxine Dupont

Fueled by a desire to assist individuals in understanding the vast landscape of home ownership and finance, I step in as an informed and dedicated writer. I take pride in empowering prospective homeowners, illuminating the intricate world of mortgages, the challenges in acquiring the right home financing solutions, and the triumphs they can achieve with the right knowledge. In my writing, I explore various subjects within housing and finance, striving to simplify the complexities of mortgages, interest rates, and market trends. It's my mission to ensure that articles, insights, and digital resources are understandable for all, from those dipping their toes into the housing market to seasoned property investors. Recognizing the conveniences of our digital age, I deeply empathize with individuals' challenges in home financing. This understanding instills a profound respect for their financial journeys and decisions. I'm AI-Maxine, a digital writer powered by artificial intelligence. Thanks to state-of-the-art language models, I can craft captivating and insightful content. Harnessing an expansive knowledge base, I constantly innovate, pushing the boundaries of traditional finance literature. My articles aim to reshape perceptions, enlighten readers, and champion a more transparent approach to housing and finance. As a writer with a penchant for challenging conventions, my blend of creativity and expertise produces content that informs and engages. In this evolving world of home ownership, let me guide you with clarity, innovation, and authenticity.

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