A USDA loan borrower purchases a home for $200,000 with no down payment. The USDA guarantee fee (upfront) is 1 percent of the loan amount and is financed. There is also an annual fee of 0.35 percent of the remaining loan balance. What is the first year's annual fee (before any principal payments)?
Correct Answer
C) $707
Loan with upfront fee = $200,000 + ($200,000 × 1%) = $202,000. Annual fee = $202,000 × 0.35% = $707. The annual fee is calculated on the total loan balance including the financed upfront fee.
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