How to Calculate USDA Mortgage Funding Fee

Rural home buyers might qualify for zero down payment loans through the USDA.
Rural home buyers might qualify for zero down payment loans through the USDA. (Image: Jupiterimages/Creatas/Getty Images)

The United States Department of Agriculture offers home loans in rural areas with the goal of helping low-income families obtain home ownership. These home loans through USDA offer 100 percent financing, so no down payment is required. However, a mortgage funding fee is used to guarantee the mortgage or prevent future losses from foreclosures. Borrowers can either pay the funding fee, which is figured as a percentage of the loan amount, or add it to the mortgage so it is financed.

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  • Home purchase price
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Obtain a purchase price for the house you choose. You should negotiate prices, if possible, with the seller. As of March 2011, the funding fee is 3.5 percent, but that rate can change over time, so check with the USDA for current conditions before you buy. Because the mortgage funding fee is a percentage of the mortgage, the lower the price of the home, the lower the mortgage funding fee will be.

Convert the 3.5 percent fee to a decimal in order to calculate the funding fee. To change this percentage to a decimal, you will need to divide by 100. So, 3.5 divided by 100 is 0.035.

Calculate the mortgage funding fee by multiplying the purchase price of the home by 3.5 percent, or 0.035. The result is the cost of the mortgage funding fee. If you can not afford to pay it, you can include it in the amount the lender will finance.

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