By John Tappan | NMLS# 394171
No, USDA loans do not require traditional private mortgage insurance (PMI). However, USDA borrowers do pay a similar cost called the USDA guarantee fee, which has two parts: a 1.00% upfront fee charged at closing and a 0.35% annual fee paid monthly for the life of the loan. The structure is different from conventional PMI in three important ways — the cost is meaningfully lower, the upfront portion can be rolled into the loan, and the annual fee cannot be canceled at 20% equity the way conventional PMI can.
Does a USDA Loan Have PMI?
This is the most common question new USDA borrowers ask, and the answer requires a small clarification. Technically, no — the USDA program does not use private mortgage insurance. PMI is a product underwritten by private insurance companies and required on conventional loans with less than 20% down. USDA loans are guaranteed by the U.S. Department of Agriculture rather than insured by a private company.
In practice, though, USDA borrowers still pay something that functions like mortgage insurance. The USDA Section 502 Guaranteed Loan program charges a guarantee fee designed to fund the federal guarantee that makes 100% financing possible. The mechanics are different, but the borrower experience — a monthly cost in exchange for a low-or-no-down-payment loan — is conceptually similar.
Does USDA Loan Require Mortgage Insurance? The Two-Part Fee Structure
Yes, USDA loans require the USDA guarantee fee, which functions as mortgage insurance even though it is not technically called PMI. In 2026, the fee structure is:
- Upfront guarantee fee: 1.00% of the loan amount. Charged at closing. Most borrowers roll this fee into the loan balance, which slightly increases the financed amount but eliminates the out-of-pocket cost.
- Annual fee: 0.35% of the outstanding principal balance. Paid monthly as part of the borrower’s regular mortgage payment, alongside principal, interest, taxes, and insurance.
Worked example. On a $250,000 USDA loan with zero down, the borrower pays approximately $2,500 upfront (1.00% × $250,000) and roughly $72.92 per month in annual fees during the first year. As the principal balance declines, the annual fee declines proportionally each year. The 1.00% upfront and 0.35% annual structure is in effect through 2026 per current USDA program guidance.
For borrowers comparing USDA to other low-down-payment programs, FHA loan programs as a USDA alternative cover the FHA mortgage insurance premium structure, which charges 1.75% upfront and 0.55% annually on most loans.
How the USDA Guarantee Fee Compares to PMI and FHA MIP
Here is the side-by-side cost picture on a $250,000 loan:
- USDA loan: $2,500 upfront + ~$875 annual (0.35%) = $875 first-year ongoing cost
- FHA loan: $4,375 upfront (1.75%) + ~$1,375 annual (0.55%) = $1,375 first-year ongoing cost
- Conventional with PMI: $0 upfront + roughly $1,500 to $3,000 annual depending on credit score = $1,500–$3,000 first-year ongoing cost
USDA is meaningfully cheaper on the ongoing side than either FHA or conventional PMI for most borrowers. The catch: USDA loans require the property to be in a USDA-eligible rural or semi-rural area and the borrower’s household income to stay below program caps.
For first-time buyers comparing the full menu of low-down-payment programs, purchase loan programs for first-time buyers breaks down conventional, FHA, VA, and USDA side by side.
Can You Remove the USDA Annual Fee?
Conventional PMI can be canceled once the loan-to-value ratio reaches 78% to 80% under the Homeowners Protection Act. The USDA annual fee cannot be canceled. It remains in place for the life of the loan unless the borrower refinances out of USDA financing entirely. Borrowers who reach 20% equity and want to eliminate the annual fee can refinance into a conventional loan with no PMI — explored in detail in BD Nationwide’s guide to removing PMI on conventional loans.
Bottom Line on USDA Loans and Mortgage Insurance
USDA loans do not require traditional PMI, but they do require a USDA guarantee fee that functions similarly. The 1.00% upfront fee and 0.35% annual fee in 2026 make USDA one of the most cost-effective zero-down financing options available — provided the property and the borrower’s income both qualify. The annual fee cannot be removed without refinancing, which is the key structural difference borrowers should understand before choosing USDA over FHA or conventional.
Frequently Asked Questions on USDA Loans and PMI
Is the USDA annual fee the same as PMI?
No. The USDA annual fee and PMI serve a similar purpose — protecting the lender against default — but they are structurally different. PMI is private insurance required on conventional loans below 80% LTV. The USDA annual fee is a federal program fee charged at 0.35% of the remaining balance and paid monthly. The USDA fee is typically cheaper than PMI but cannot be canceled at 20% equity.
Can I roll the USDA upfront guarantee fee into my loan?
Yes. Most USDA borrowers finance the 1.00% upfront guarantee fee directly into the loan balance rather than paying it out of pocket at closing. On a $250,000 home with zero down, the upfront $2,500 fee makes the financed loan amount $252,500. This is one of the program’s most valuable features because it preserves cash reserves for moving and post-closing expenses.
How long do I pay the USDA annual fee?
You pay the USDA annual fee for the life of the loan. Unlike conventional PMI, which can be removed when the loan-to-value ratio reaches 78% to 80% under the Homeowners Protection Act, the USDA annual fee is not cancelable while the USDA loan remains in place. The only way to eliminate it is to refinance into a conventional loan once you reach sufficient equity.
Is USDA cheaper than FHA when both require ongoing mortgage insurance?
Yes, generally USDA is cheaper than FHA on both fees. USDA charges 1.00% upfront and 0.35% annually. FHA charges 1.75% upfront and 0.55% annually on most loans. On a $250,000 loan, USDA’s combined first-year cost runs roughly $500 lower than FHA. USDA is also the only program offering true zero-down financing for eligible borrowers, which lowers the total cost-to-close further.
What happens to the USDA annual fee if my home appreciates significantly?
Home appreciation does not reduce or eliminate the USDA annual fee. The fee is fixed at 0.35% of the outstanding loan balance regardless of how much equity you build through appreciation. To capture the benefit of significant appreciation and stop paying the fee, you would need to refinance out of the USDA loan and into a conventional loan with no PMI, typically once you have at least 20% equity in the property.
Reviewed by John Tappan NMLS# 394171 | Updated June, 2026
Disclosure: This article reflects USDA Section 502 Guaranteed Loan program fee structures as published by the U.S. Department of Agriculture for 2026. USDA fees, income limits, and eligibility requirements change periodically and vary by location and household. The figures above are general references, not a quote or commitment to lend. Borrowers should verify current USDA program details at rd.usda.gov and request personalized estimates from multiple USDA-approved lenders. BD Nationwide connects borrowers with lenders and does not directly originate USDA loans.