How is the Up Front Guarantee Fee calculated when it is financed?

The Up Front Guarantee Fee for USDA Rural Housing Loans is designed to ensure that borrowers can finance this fee as part of their mortgage. The correct method for calculating this fee when it is being financed involves dividing the base loan amount by a factor of 0.990 and then multiplying the result by 0.01.

This calculation is necessary because the USDA allows the guarantee fee to be included in the mortgage, which can affect the overall loan amount and the borrower’s monthly payment. By using this method, the fee effectively reduces the amount of financing available to the borrower slightly, as it is calculated based on a reduced base amount.

This option accurately reflects the guidelines set forth by the USDA for calculating the Up Front Guarantee Fee in a way that aligns with their financing structures. It ensures that the borrowing process remains straightforward while accommodating the added cost of the guarantee fee.