How to Calculate Your Monthly USDA Loan Payment
Planning to buy a home in a USDA-designated rural community? You can use the Mortgage Research Center USDA loan payment calculator to estimate your monthly payments based on your anticipated purchase price, interest rate, and other impacting factors.
Here's a quick rundown of the different terms you should be familiar with to use our USDA loan mortgage calculator effectively.
Home Value
Home value is the total amount you plan to pay for your purchase. Enter different amounts to see what your monthly payments might look like at various home price points.
Down Payment
Down payments are optional with USDA-backed loans. As such, the MRC USDA loan payment calculator defaults to $0. However, making a down payment will reduce the amount you need to borrow and lead to smaller monthly payments and less lifetime interest.
If you plan to make a down payment on your USDA-guaranteed loan, you can enter it here as either a fixed dollar amount or a percentage of your total purchase price.
Interest Rate
Your interest rate is the percentage of your loan balance you agree to pay your lender annually in exchange for them financing your home purchase. Since the federal government backs USDA loans, qualifying buyers are often quoted rates lower than with conventional mortgages.
If you have already spoken with a lender and know the exact rate you qualify for, you can enter it here. Otherwise, the USDA loan mortgage calculator will be pre-filled with an estimated interest rate based on current market trends.
Loan Term
Loan term refers to the length of time that you will spend paying back your mortgage. The USDA guaranteed loan program currently only allows lenders to approve mortgages with a 30-year repayment period.
Loan Type
Loan type refers to the type of USDA loan you’re applying for:
- USDA Purchase Loan – This is the standard USDA loan you would use to purchase property within agency-designated rural communities.
- USDA Interest Rate Reduction Refinance – This option is for refinancing a currently-held USDA loan. You will generally see this referred to as a USDA Streamlined-Assist refinance. Borrowers with non-USDA mortgages are not eligible to refinance through the agency.
Property Tax Rate
Your property tax rate is the percentage of your home's value you'll pay to local governments and tax districts each year. The Mortgage Research Center USDA loan payment calculator defaults to a 1.2% property tax rate. However, actual costs may be higher or lower in your area.
Homeowner’s Insurance
Homeowner's insurance is the policy that protects your home against damage and can mitigate your financial responsibility for injuries incurred on your property. This figure is set at 0.35% for USDA loans, although actual costs vary by location, home, and insurance needs.
Principal and Interest
Principal and interest will generally make up the bulk of your monthly mortgage payments. This amount reduces your total balance and pays off accumulated interest charges. Your principal and interest payments will remain consistent throughout the life of your loan, although the way the funds are divided will change over time.
For Example: A 30-year fixed rate USDA mortgage for $250,000 at a 7% interest rate would have monthly principal and interest payments of $1,663. During the first month, $205 would be applied to the principal, with $1,459 going to interest. However, your final payment would reduce your principal by $1,654, with just $9 due in interest.
USDA Annual Fee
The USDA annual fee serves as a type of mortgage insurance that helps ensure the overall stability of the Department of Agriculture's Rural Development program. The USDA currently charges an annual fee equal to 0.35% of your loan balance that is split evenly between your 12 monthly payments.
USDA Funding Fee
The USDA funding fee is an upfront cost of 1% of your loan amount. This amount, which also serves to safeguard the USDA home loan program, can be paid in full at closing or rolled into your total mortgage amount.
Other Costs to Expect
In addition to the topics outlined above, there are a few other costs that borrowers can expect to incur when purchasing a home or taking out a USDA loan.
Closing Costs
Closing costs for USDA loans typically run between 2% and 5% of the total purchase price. Since you do not need a down payment for USDA-backed mortgages, borrowers who qualify for down payment or closing cost assistance may be able to use the funds to cover some or all of these costs.
Also, if the home appraises higher than your agreed-upon purchase price, your lender may allow you to wrap your closing costs in with your new loan.
Appraisal and Inspection
All USDA loans require an appraisal by a licensed property appraiser to verify the home's fair market value and ensure that it meets the program's minimum property requirements. While the average home appraisal costs between $350 and $600, depending on location, you can expect to pay a little more, as USDA loans require a more in-depth appraisal process than conventional mortgages.
HOA Dues
Not all properties have HOA dues, especially in less densely populated rural areas. However, if you are purchasing a property in a neighborhood with a homeowners association, you'll likely be responsible for paying association fees.
HOA dues are paid directly to your neighborhood's association and are separate from your monthly mortgage payments. Depending on the association, dues may need to be paid monthly, quarterly, semi-annually, or annually.
USDA Loan Rates
Since the United States government insures USDA mortgages, USDA loan rates tend to be lower than most conventional options – particularly for borrowers without exceptional credit. Loans that have government backing are less risky for mortgage issuers. Lenders can then pass that assurance on to borrowers in the form of reduced interest rates.
It's worth noting that USDA loans have an ongoing annual fee of 0.35%, which is generally lower than the private mortgage insurance required by conventional lenders from most borrowers making the minimum 3% or 5% down payment.
USDA Loan Eligibility
The USDA has established guidelines outlining the loan eligibility standards that all residential borrowers must meet. Your lender will help ensure you meet the USDA loan eligibility requirement during the qualifying process.
Credit Score
With USDA residential loans, the minimum required credit score is left to the discretion of individual lenders. In many cases, mortgage companies will want to see a median credit score of 640, which is the lowest score eligible to use the USDA’s Guaranteed Underwriting System (GUS).
Some USDA lenders will accept applicants with lower scores, although these loans will need to go through the manual underwriting process rather than being able to obtain prompt automated approval.
Debt-to-Income Ratio
USDA lenders typically accept borrowers with a debt-to-income (DTI) ratio as high as 41%. This means that your monthly debt obligations – which include the mortgage you're applying for – can be up to 41% of your qualifying monthly income.
In some instances, applicants with compensating factors may be approved with a DTI of up to 44%. These compensating factors could include:
- Sizable cash reserves left after closing
- Consistent long-term employment
- Mortgage costs no more than 5% above your current housing expense
Property Type
Only single-family primary residences located within specified rural areas can qualify for USDA mortgages. You cannot purchase a second home, investment property, or multi-family residence with an agency-backed loan.
Properties may also not contain income-producing buildings or otherwise be used as a source of income. However, you can buy a home with an accessory dwelling unit if you do not plan to use it to generate rental revenue.
Income Limits
Unlike most conventional and other types of government-backed mortgages, USDA loans have a maximum household income limit. This limit applies to all adults living in the home and is set based on your household size and the area's median income.
The USDA income limit is currently $112,450 for households of up to four in most parts of the United States. Larger households and properties located in designated high-cost areas will have higher limits.
Here are a few examples of higher-cost areas and how they stack up against the standard limits.
|
1 to 4-Person Household |
5 to 8-Person Household |
|
|
Standard Limit |
$112,450 |
$148,450 |
|
Sioux Falls, SD |
$121,400 |
$160,250 |
|
Huntsville, AL |
$124,050 |
$163,750 |
|
Omaha-Council Bluffs, NE |
$125,950 |
$166,300 |
|
Des Moines, IA |
$129,950 |
$171,550 |
USDA Loan Fees vs Conventional PMI
All USDA home loans have a 0.35% annual fee that acts much like mortgage insurance to ensure the stability of the USDA program. The USDA annual fee is lower than the FHA mortgage insurance premium in most instances, with the majority of FHA borrowers paying a rate of 0.55%
By comparison, conventional loans require risk-based private mortgage insurance on all loans with less than a 20% down payment (or 20% equity for refinances). Rates vary by your credit score and the size of your down payment (equity). Through PMI provider MGIC, mortgage insurance can run between 0.14% and 2.33% annually.
The USDA loan annual fee persists for the lifetime of your mortgage. In most cases, the FHA mortgage insurance premium does as well. With a conventional loan, you can cancel your PMI once you reach 20% equity.
In addition, USDA loans also have an upfront guarantee fee equal to 1% of the borrowed amount. This can be paid at closing or wrapped into your mortgage balance. Upfront fees on FHA loans are currently set at 1.75%, while most VA borrowers will pay between 1.25% and 3.3%.
Conventional loans, on the other hand, do not have an upfront fee.
|
Loan Type |
Upfront Fee |
Annual Fee |
|
USDA Loan |
1% |
0.35% |
|
Conventional Loan |
0% |
0.14% to 2.33%* |
|
FHA Loan |
1.75% |
0.15% to 0.75%, typically 0.55% |
|
VA Loan |
1.25% to 3.3% |
0% |
*cancellable at 20% equity; rates according to MGIC.
USDA Refinance Options
Homeowners with USDA-backed loans have multiple refinance options to choose from, although most borrowers will opt for the USDA Streamlined-Assist refinance for its ease and simplicity.
However, in some cases, other refinance programs may make more sense.
Non-Streamlined Refinance
The USDA non-streamlined refinance requires you to reverify your income and obtain a new appraisal for your home. This option is like a standard rate-and-term refinance. It most commonly makes sense when the borrower does not meet the monthly payment reduction required for streamlined loans.
Streamlined Refinance
The USDA Streamlined refinance allows you to forgo obtaining a new home appraisal, saving time and money during the underwriting process. However, you will still need to go through the income verification process, and you must reduce your monthly payments by at least $50 to qualify. This option makes the most sense when a co-borrower needs to be removed from your mortgage.
Streamlined-Assist Refinance
With the USDA Streamlined-Assist refinance, you will not need to obtain a home appraisal or undergo an in-depth credit or income check. However, you will need an on-time payment history of at least 12 months to qualify, and you must be able to reduce your monthly payments by $50 or more.
Because of the simplified process, borrowers who have seen their credit score or income drop or have insufficient equity to refinance through other methods may still be eligible.
Remember: You must already have a USDA loan to refinance through an agency-backed program. There is also no USDA cash-out refinance option, meaning that you’ll want to consider an FHA cash-out or conventional cash-out if you hope to withdraw your built-up equity at closing.
What to Do Next
If the numbers you’re seeing on our USDA loan mortgage calculator fit within your budget, the next step is to get in touch with a USDA-approved mortgage provider serving your area. Your lender will provide you with an individualized estimate that covers your:
- Qualifying interest rate
- Anticipated monthly payments
- Estimated closing costs
At this point, you should seek preapproval from at least two more mortgage lenders to secure the best rate and negotiate the lowest closing costs. In many cases, you can submit your best loan estimate to the other lenders you're in contact with so they can compete against each other to earn your business.
