Guarantee Fee
What Is a Guarantee Fee?
A guarantee fee is a charge paid by borrowers on certain government-backed mortgage loans to compensate the agency that guarantees the loan.
It is most commonly associated with USDA loans backed by the United States Department of Agriculture.
The fee helps offset the cost of the government’s guarantee in case of borrower default.
Guarantee fees typically include:
- An upfront fee at closing
- An annual fee added to monthly payments
Why It Matters in a Mortgage
Guarantee fees:
- Increase total borrowing cost
- Affect monthly PITI payment
- Replace traditional private mortgage insurance
Although USDA loans often require no down payment, the guarantee fee ensures the program remains financially sustainable.
Borrowers should factor both upfront and annual portions into affordability calculations.
How It Works
Example:
- Loan Amount: $250,000
- Upfront Guarantee Fee: 1%
- Upfront Cost: $2,500
Annual fee may be calculated as a percentage of the remaining balance and included in monthly payments.
Guarantee Fee vs. PMI
Guarantee Fee → USDA loans
PMI → Conventional loans
Both protect the lender, not the borrower.
FAQs About Guarantee Fees
Can the upfront fee be financed?
Often yes.
Is the annual fee permanent?
Typically for the life of the loan.
Does it protect the homeowner?
No.
Related Terms
USDA Loan
Mortgage Insurance
PITI
Loan-to-Value Ratio
Underwriting
