A lender is quoting a USDA guaranteed loan in 2026 and wants to know the outer limits the Agency may charge.
Correct Answer
C) Up to 3.5% upfront and up to 0.5% annually on the unpaid balance
The regulation sets ceilings rather than rates: the upfront guarantee fee may not exceed 3.5% of the principal obligation and the annual fee may not exceed 0.5% of the average scheduled unpaid balance, with the Agency setting the charged rates below those. Other choices: 1.75% and 0.85% are FHA premium figures; 2.15% is the VA first-use funding fee, and USDA does permit an annual fee; and 5% with 1% annually is above what the regulation allows. Source: 7 CFR 3555.107, guarantee fee and annual fee
Why This Is the Correct Answer
The regulation sets ceilings rather than rates: the upfront guarantee fee may not exceed 3.5% of the principal obligation and the annual fee may not exceed 0.5% of the average scheduled unpaid balance, with the Agency setting the charged rates below those. Other choices: 1.75% and 0.85% are FHA premium figures; 2.15% is the VA first-use funding fee, and USDA does permit an annual fee; and 5% with 1% annually is above what the regulation allows. Source: 7 CFR 3555.107, guarantee fee and annual fee
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