Kentucky USDA Loan Guide · Updated October 2026
USDA loans don’t have private mortgage insurance. Instead, USDA charges two fees that pay for its loan guarantee: a one-time upfront guarantee fee and a yearly annual fee that’s built into your monthly payment. Here’s what they cost in 2026, how they’re calculated, and how they compare with FHA and conventional mortgage insurance.
USDA guarantee fees for 2026
- Upfront guarantee fee: 1% of the loan amount. Paid at closing, and it can be added to your loan, so it usually costs nothing out of pocket.
- Annual fee: 0.35% of the average unpaid balance. Divided into 12 monthly installments and included in your mortgage payment.
- How long it lasts: the annual fee stays for the life of the loan. It doesn’t drop off at 20% or 22% equity like conventional PMI.
These rates have been in place since October 1, 2016, when USDA cut the upfront fee from 2.75% to 1.00% and the annual fee from 0.50% to 0.35%. USDA can change them for each fiscal year.
What the fees cost: a $200,000 example
| Item | Amount |
|---|---|
| Base loan (100% of a $200,000 price) | $200,000 |
| Upfront guarantee fee (1%), added to the loan | $2,000 |
| Total loan amount | $202,000 |
| Annual fee, first year (0.35%) | About $705 a year, or about $59 a month |
Because the annual fee is based on your remaining balance, it gets a little smaller every year as you pay the loan down.
USDA fees vs. FHA and conventional mortgage insurance
| Loan | Upfront | Ongoing | Can it be removed? |
|---|---|---|---|
| USDA | 1% | 0.35% a year | No (only by refinancing) |
| FHA | 1.75% | Usually 0.50%–0.55% a year | Not with less than 10% down |
| Conventional | None | PMI based on credit and down payment | Yes, at 20%–22% equity |
For most Kentucky buyers with modest down payments, USDA’s 0.35% annual fee is the lowest monthly mortgage insurance cost available, and USDA doesn’t require a down payment at all. If you later build enough equity, refinancing into a conventional loan is the only way to stop paying the annual fee (see Kentucky USDA refinance options).
USDA fee FAQs
Does a USDA loan have PMI?
No. USDA loans don’t have private mortgage insurance. They have a 1% upfront guarantee fee and a 0.35% annual fee, which do the same job at a lower cost than most PMI or FHA mortgage insurance.
Can the USDA guarantee fee be financed?
Yes. The 1% upfront fee can be added to your loan amount, even if that puts the loan above the appraised value, so most buyers pay nothing for it at closing.
When does the USDA annual fee go away?
It doesn’t. The annual fee lasts for the life of the loan. The only way to stop it is to refinance into a different loan, such as a conventional loan once you have enough equity.
Do USDA refinances have a guarantee fee too?
Yes. USDA refinances, including the Streamlined-Assist, carry the same 1% upfront fee and 0.35% annual fee as a purchase loan.
See your exact USDA payment
Call or text Joel Lobb at 502-905-3708 or email kentuckyloan@gmail.com for a payment estimate with the guarantee and annual fees included, side by side with FHA and conventional.
Thank you for wriiting this
Reblogged this on Kentucky First Time Home Buyer Loan Programs for FHA, VA, KHC and USDA Mortgage Loans in Kentucky and commented:
When does PMI stop on Kentucky Rural Housing USDA Loans?
How Can I Get Rid of Mortgage Insurance for a Rural Housing Loan In Kentucky?
USDA’s Mortgage insurance is for the life of the loan
Mortgage insurance advantages & strategies for lower down payment and payment USDA has an annual fee which is similar to private monthly mortgage insurance premiums and an upfront guarantee fee paid to USDA at closing that is currently equal to 1% of the loan amount.
The annual fee is recalculated each year based on the new balance of the mortgage. The annual fee is currently only .35 which began October 1, 2016.
The annual fee percentage on USDA loans stays for the entire 30 year term but because it is based on the annual mortgage balance. Therefore, the dollar amount decreases each year.
How to calculate monthly mortgage insurance for Kentucky USDA loans:
Take Loan amount x 1.0101% (USDA funding fee) x .0035 / 12 = monthly
fee to include in the monthly mortgage payment.
So on a $100,000 sales price, going no money down, this would yield a total loan amount of $101,000 with a monthly mortgage insurance premium of $29.45 a month.
This is very cheap mortgage insurance when compared to an Kentucky FHA loan.