USDA mortgage requires two types of fees: an upfront guarantee fee and a monthly fee similar to FHA.

The term “guarantee” simply refers to USDA’s loan backing that allows lenders to issue loans according to its guidelines.

The upfront guarantee fee stands at 2.75 percent of the loan amount, and the “annual fee” is currently 0.50 percent, paid in twelve equal installments and included in each mortgage payment.

Starting on October 1, 2016, the upfront fee will be reduced.

Current upfront fee: 2.75%
New upfront fee: 1.00%
The monthly fee will also drop.

Current annual fee: 0.50%
New annual fee: 0.35%
The changes will be in effect until September 30, 2017. Typically, USDA re-examines financials of previous fee changes then raises, holds, or reduces fees accordingly. If loans in USDA’s portfolio perform well, another drop could come in 2017.

But the 2016 reductions alone equal big savings for USDA home buyers.