Recent changes to USDA loan programs: Fees, funding and refinance rules

Written by Samantha SheltonNMLS 1647301Updated October 2026

USDA’s loan fees did not move for fiscal year 2026. The upfront guarantee fee held at 1% of the loan amount and the annual fee held at 0.35% of the scheduled unpaid balance, unchanged from fiscal 2025 and well under the ceilings of 3.5% and 0.5% written into 7 CFR 3555.107. What changed is who approves the loan and how much money the programs have.

Family outside a rural Michigan farmhouse financed through a USDA loan program

USDA’s Delegated Lender rule became effective June 17, 2026, adding the regulation that lets qualified lenders underwrite, approve and close a Section 502 guaranteed loan without the Agency-issued Conditional Commitment. USDA set implementation for September 28, 2028 and will publish a Federal Register notice before it turns on; a limited pilot starts September 1, 2026. And the fiscal 2026 appropriations enacted November 12, 2025 raised Section 502 direct loan funding to $1 billion from $880 million, holding the guaranteed program at a $25 billion loan level.

Learn what actually changed in USDA loan programs this year: where the fees sit against their ceilings, what the funding lines mean for a direct-loan applicant, how the delegated-lender rule shortens the file, and which refinance rules held.

Key takeaways:

Fees held flat at 1% and 0.35%: USDA republishes both fees each fiscal year, and for fiscal 2026 it left the upfront guarantee fee at 1% and the annual fee at 0.35% against regulatory ceilings of 3.5% and 0.5%.
Direct-loan funding rose to $1 billion: Fiscal 2026 lifted Section 502 direct lending from $880 million and kept the guaranteed loan level at $25 billion, so the zero-down guaranteed program stayed the high-volume option.
Lender loan approval is written into the rules, effective June 17, 2026: Lenders with at least 2 years in the program and passing performance metrics will be able to approve loans and obtain the guarantee with no Conditional Commitment, but USDA set implementation for September 28, 2028, with a pilot beginning September 1, 2026.

What is a USDA loan?

A USDA loan is a mortgage made under Section 502 of the Housing Act of 1949 for a primary residence in a designated rural area, with no down payment and household income capped by USDA’s published limits. There are two separate Section 502 programs, and blurring them is the most common mistake in USDA coverage: the guaranteed program is a loan made by a private lender and backed by USDA, while the direct program is a loan made by USDA itself. Different income targets, different rates, different application paths. Our USDA loan basics primer walks the qualification path.

Feature	Section 502 guaranteed	Section 502 direct
Who makes the loan	A private lender; USDA guarantees it	USDA Rural Development itself
Income target	Adjusted income at or below the area moderate income limit	At or below the area low-income limit at approval, moderate at closing
Interest rate	Fixed, negotiated between you and the lender	Set by USDA; payment assistance can cut the effective rate to as low as 1%
Maximum term	30 years	33 years, or 38 years if adjusted income is at or below 60% of area median
Down payment	None required	None required
Ongoing fee	0.35% annual fee for the life of the loan	No guarantee fee; subsidy is subject to recapture on sale

USDA writes the guaranteed program’s income ceiling as a formula, not a number. Under 7 CFR 3555.10, the moderate income limit is the greater of 115% of U.S. median family income, the average of the statewide and state non-metro median family income, or 115/80ths of the area low-income limit for your county and household size. That is why it gets summarized as 115% of area median income, and why it moves with your county and household size. USDA posts current figures on its single family housing programs page. For how USDA compares with FHA and VA, see our guide to government-backed loans and our loan types and programs guide.

Did USDA loan fees change for fiscal year 2026?

No. The upfront guarantee fee stayed at 1% of the loan amount and the annual fee stayed at 0.35% for fiscal year 2026, which runs October 1, 2025 through September 30, 2026. USDA sets both fees administratively each fiscal year, and the rates in effect when your loan closes govern the life of that loan.

The useful thing to know is the rule that generates the number. 7 CFR 3555.107(g) allows an upfront guarantee fee of up to 3.5% of the principal obligation, and 7 CFR 3555.107(h) allows an annual fee of up to 0.5% of the average annual scheduled unpaid principal balance. USDA charges well under both, and those ceilings are why the fee can move without an act of Congress. Check the current fee against USDA’s own page before you rely on a quote.

Here is what both fees look like on a $250,000 loan.¹ The 1% upfront fee is $2,500, and USDA lets you finance it, which turns the loan into $252,500. The 0.35% annual fee on that balance runs about $884 in year one, roughly $74 a month collected inside your payment, and it shrinks a little each year as the balance amortizes.

How much funding do USDA housing programs have this year?

The fiscal 2026 appropriations, enacted November 12, 2025, funded Section 502 direct loans at $1 billion, up from the $880 million provided in both fiscal 2024 and fiscal 2025. The Section 502 guaranteed program held at a $25 billion loan level, the same as fiscal 2025.

Section 502 direct loans, $1 billion: A roughly $120 million increase, or about 14%. Direct loans are a finite pot, so applications are processed against available funds and timing matters.
Section 502 guaranteed loans, $25 billion: This is loan authority, not spending. Private lenders make the loans and USDA backs them, which is why the guaranteed program carries the volume and why the guarantee fee exists.
Section 504 repair loans, $25 million; repair grants, $21 million: Repair loans held flat while grants were cut from $25 million. These loans carry a 1% rate and a 20-year term, and grants require an applicant 62 or older. The per-household ceilings are formulas: a loan cannot exceed 20% of the national average area loan limit, and lifetime grants cannot exceed 10% of it.
Section 521 rental assistance, $1.715 billion: Up from $1.608 billion, with the increase aimed at properties where Section 515 mortgages have ended.

None of this changes your qualification math on a guaranteed loan. It changes the queue on the direct side. Our overview of USDA and assistance programs maps which door to knock on.

What changed in how USDA loans get approved?

The biggest 2026 change is procedural: USDA is moving loan approval from the Agency to the lender. The Delegated Lender rule added 7 CFR 3555.55 effective June 17, 2026, but the rule’s own DATES section sets implementation for September 28, 2028, and USDA will publish a Federal Register notice before that. Until then the standard Conditional Commitment process still governs most files, and a September 1, 2026 pilot is the only live path to lender approval.

No Conditional Commitment for delegated lenders: Once implemented, the Conditional Commitment requirements of 7 CFR 3555.107(f) will not apply to approved Delegated Lenders. Under the standard process, that commitment expires 90 days from issuance and must be in hand before closing.
No pre-approval appraisal review: Delegated Lenders will still meet USDA’s appraisal requirements under 7 CFR 3555.107(d), but their loans skip Agency administrative appraisal review before loan approval.
Three eligibility tests for the lender: At least 2 years in the guaranteed program, performance standards met for delinquency, default and loss claims over the previous 2 years, and Agency-sponsored training each year. Delegated Lenders must also use USDA’s automated underwriting system.
A pilot arrives first: USDA’s Lender Interactive Test Environment pilot runs September 1, 2026 to September 28, 2028 and is what actually delegates loan approval in the meantime. Lenders need at least 10 guaranteed loans in the last 12 months, above-average performance over 2 years, and no failed corrective action reviews in 24 months. USDA reviews each lender’s first 5 to 15 files, then 2% monthly.
The 30-day clock did not change: Under 7 CFR 3555.107(i)(1), the lender must still request the loan guarantee within 30 days of closing.

Two more changes are proposed, not final. One would exclude real estate commission fees from the 6% interested-party contribution limit in 7 CFR 3555.102(h), matching what FHA, VA, Fannie Mae and Freddie Mac already do; comments closed June 22, 2026. The other would allow a guaranteed loan on a property with income-producing accessory dwelling units or design features for a home-based business; comments closed June 1, 2026. Until either is finalized, the existing restrictions in 7 CFR 3555.102 control.

What changed for USDA refinances and credit standards?

Almost nothing, and that is the point. USDA’s refinance rules are the most restrictive part of the program and they held firm in 2026. Here is what is allowed and what is not.

You can refinance even if your area went non-rural: USDA’s handbook is explicit that refinance loans are permissible for properties in areas determined non-rural since the existing loan was made. Losing the map does not lose the loan.
You cannot take cash out: 7 CFR 3555.101(d)(3)(i) allows three options, streamlined, non-streamlined and streamlined-assist, and permits no cash out on any of them. A nominal amount can fall out at closing from final escrow and interest math; that is not a cash-out loan.
You are taking a 30-year fixed, at the same rate or lower: The new rate must be fixed and cannot exceed the rate on the loan being refinanced. 7 CFR 3555.104(b) caps the term at 30 years and rules out adjustable-rate, balloon and prepayment-penalty structures.
Only an existing USDA loan qualifies: A Section 502 direct or guaranteed loan can become a new guaranteed loan. A conventional or FHA loan cannot.
Payment history is the gate: The account must have been current for the 180 days before application, and USDA’s handbook adds that the loan being refinanced must have closed at least 12 months earlier.
Streamlined-assist skips the most: No debt-to-income calculation, no credit report, no property inspection and no loan-to-value requirement, with no appraisal except for direct-loan borrowers who received a subsidy.

Credit standards did not change either, and they are widely misreported. USDA publishes no minimum credit score. 7 CFR 3555.151(i) requires a verifiable credit history and an acceptable score, leaving the threshold to the automated underwriting system and to lender judgment. The only score in the regulation is 680, and it appears as a compensating factor that supports exceeding the standard ratios, not as a floor. Any minimum you have been quoted is a lender overlay, and overlays differ lender to lender.

The ratios are the real test. Under 7 CFR 3555.151(h)(1)(i), you have adequate repayment ability when housing expense stays at or below 29% of repayment income and total debt at or below 41%; exceeding those on a manually underwritten file requires documented compensating factors. The CFPB explains how lenders calculate debt-to-income ratio.

What Michigan buyers should know

Michigan is where the 2026 changes land hardest, because so much of the state sits inside USDA’s eligible map and because Michigan was picked for one of the new pilots.

Michigan is 1 of 24 states in USDA’s new Section 502 pilot: From March 23, 2026 through March 23, 2028, USDA is testing whether self-help housing values and third-party affordable housing assistance can exceed the area loan limit on direct loans. Michigan made the list alongside Minnesota, Ohio and Pennsylvania.
Small-town Michigan keeps its eligibility to 35,000 residents: Section 520 of the Housing Act of 1949 lets a place classified rural that later outgrew the threshold stay rural through the 2030 decennial census, so long as its population does not exceed 35,000 and it still meets the rural-character and mortgage-credit tests. That is why plenty of Michigan towns past 10,000 residents still show as eligible, and why you check the map by street address rather than by assumption.
Down payment assistance has to stay in second position: Michigan buyers often pair a first mortgage with MSHDA down payment assistance, which records as a second lien. On a USDA refinance, USDA’s handbook does not allow home equity seconds or DPA silent seconds to be rolled into the new loan, and existing secondary financing must stay subordinate to the new first lien. Plan the subordination before you apply. See our guide to state-specific mortgage assistance programs.
Direct-loan area limits track the local FHA limit: Under 7 CFR 3550.63(a)(1), USDA’s area loan limit for Section 502 direct loans is a percentage of the applicable local HUD Section 203(b) limit, reviewed at least annually.² The ceiling in Oakland County is not the ceiling in Alcona County, and both move when FHA’s limits move.

If your income lands near the moderate limit or your file is close to the 41% total debt ratio, spend an hour with a counselor before you apply. You can find a HUD-approved housing counselor in Michigan at no cost.

How Align uses assistance programs

Align places MSHDA loans, including down payment assistance, alongside USDA and FHA options. Samantha shows you how each one changes your cash to close and your monthly payment, so you choose with the numbers in front of you.

Assistance programs come with their own rules and paperwork. With one person on your file from start to finish, those rules get read before you write an offer, not after.

Get a first-time homebuyer plan USDA loans in Michigan

FAQ: Recent changes to USDA loan programs

Here are answers to common questions about recent changes to USDA loan programs.

Did USDA loan fees go up in 2026?

No. The upfront guarantee fee stayed at 1% of the loan amount and the annual fee stayed at 0.35% of the scheduled unpaid balance for fiscal year 2026. Both sit below the ceilings of 3.5% and 0.5% in 7 CFR 3555.107, and USDA resets them each fiscal year, so the rates in effect on your closing date govern your loan. Our USDA loan basics guide shows where both land in your payment.

Can I refinance a USDA loan if my area is no longer rural?

Yes. USDA’s guaranteed loan handbook allows refinance loans on properties in areas determined non-rural since the existing loan was made, so long as the loan itself is a Section 502 direct or guaranteed loan. The new loan must be a 30-year fixed with no cash out, at a rate no higher than the one you have.

What credit score do I need for a USDA loan?

USDA does not set one. 7 CFR 3555.151 requires a verifiable credit history and an acceptable score but names no minimum; the only number in the regulation is 680, and it is a compensating factor that supports exceeding the 29% and 41% ratio limits, not a cutoff. Any minimum you are quoted is a lender overlay, and overlays vary across our government-backed loan network.

Can I take cash out with a USDA refinance?

No. 7 CFR 3555.101(d)(3)(i) permits three refinance options and allows no cash out on any of them, though a nominal amount can result at closing from final escrow and interest calculations. You also cannot roll a home equity second or a DPA silent second into the new loan. Homeowners who need equity move to a conventional or FHA cash-out instead; compare the paths in our loan types and programs guide.

The bottom line on recent changes to USDA loan programs

USDA’s cost of entry did not change in 2026: the upfront guarantee fee held at 1% and the annual fee held at 0.35%, against ceilings of 3.5% and 0.5%. The money moved, with Section 502 direct lending rising to $1 billion from $880 million and the guaranteed program holding at $25 billion. The process is moving too: the Delegated Lender rule took effect June 17, 2026 and will let qualified lenders approve and close guaranteed loans without a Conditional Commitment, with implementation set for September 28, 2028 and a pilot starting September 1, 2026. The refinance rules stayed put: 30-year fixed, rate no higher than before, no cash out, and eligible even if your area is no longer rural.

If you’re ready to find out whether your address and your income still work for USDA, talk to Align Lending. We’ll check eligibility, shop your scenario across our lender network, and put competing USDA quotes in front of you side by side. Call 248-506-5727 or start online.

Footnotes:

1. Example figures in this article are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your loan amount, fees, and payment will depend on your application, your property, and USDA’s fee levels in effect when your loan closes. Return to text.

2. Align Lending is not acting on behalf of or at the direction of FHA or HUD. USDA area loan limits are set by USDA Rural Development by reference to HUD Section 203(b) limits and are subject to change. Return to text.

Figures current as of August 2026; verify with the linked source. Sources: upfront guarantee fee ceiling of 3.5% of the principal obligation and annual fee ceiling of 0.5% of the average annual scheduled unpaid principal balance, 7 CFR 3555.107(g) and (h); current fiscal year 2026 fee levels of 1% and 0.35%, USDA Rural Development. Definition of moderate income as the greater of 115% of U.S. median family income, the average of statewide and state non-metro median family income, or 115/80ths of the area low-income limit, 7 CFR 3555.10. Section 502 guaranteed loan term not to exceed 30 years and ineligibility of adjustable-rate, balloon and prepayment-penalty terms, 7 CFR 3555.104(b). Section 502 direct repayment periods of 33 years, and 38 years where adjusted income does not exceed 60% of area adjusted median income, 7 CFR 3550.67. Payment assistance limited to the amount necessary if the loan were amortized at 1%, 7 CFR 3550.68(c). Section 504 interest rate of 1% and 20-year repayment period, 7 CFR 3550.113; maximum loan of no more than 20% and lifetime maximum grant of no more than 10% of the national average area loan limit, 7 CFR 3550.112(a) and (c); grant age requirement of 62 or older, 7 CFR 3550.103(b). Three refinance options with no cash out, fixed rate not exceeding the original rate, and 180-day current-account requirement, 7 CFR 3555.101(d)(3). Interested party contributions limited to 6% of sales price, 7 CFR 3555.102(h). Repayment ratios of 29% and 41% and the 680 credit score compensating factor, 7 CFR 3555.151(h). Credit qualification requirements with no stated minimum score, 7 CFR 3555.151(i). Guarantee request within 30 days of closing and 90-day Conditional Commitment expiration, 7 CFR 3555.107(i)(1) and (f)(1). Delegated Lender requirements, elimination of the Conditional Commitment and of pre-approval appraisal review, 7 CFR 3555.55, added by the USDA Rural Housing Service final rule “Single Family Housing Guaranteed Loan Program,” 91 FR 13211, published March 19, 2026, effective June 17, 2026, with implementation to occur September 28, 2028 and a Federal Register notice to be published before implementation. Lender Interactive Test Environment Delegated Authority Pilot Program effective September 1, 2026 through September 28, 2028, USDA Rural Housing Service notice published March 19, 2026. Section 502 self-help and affordable housing pilot effective March 23, 2026 through March 23, 2028 in 24 states including Michigan, USDA Rural Housing Service notice published March 23, 2026. Proposed exclusion of real estate commission fees from the 6% concession limit, USDA proposed rule published April 20, 2026, comments closed June 22, 2026. Proposed accessory dwelling unit and home-based operation provisions, USDA proposed rule published March 31, 2026, comments closed June 1, 2026. Fiscal year 2026 program funding of $1 billion for Section 502 direct loans, $25 billion for Section 502 guaranteed loans, $25 million for Section 504 repair loans, $21 million for Section 504 repair grants and $1.715 billion for Section 521 rental assistance, enacted November 12, 2025 as part of Public Law 119-37 (H.R. 5371); Housing Assistance Council analysis of enacted fiscal 2026 USDA housing funding. Rural area population thresholds and continued rural classification through the 2030 decennial census for places not exceeding 35,000 residents, Section 520 of the Housing Act of 1949, 42 U.S.C. 1490. Section 502 direct area loan limits set as a percentage of the applicable HUD Section 203(b) limit and reviewed at least annually, 7 CFR 3550.63(a)(1). Refinance eligibility for properties determined non-rural since origination, the 12-month seasoning requirement, the 30-year fixed refinance term, and the treatment of subordinate financing, USDA Handbook HB-1-3555, Chapter 6.

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. USDA program fees, income limits, area loan limits, eligible-area maps and funding levels change; confirm current figures with USDA Rural Development and your Loan Estimate, and consult a qualified professional about your situation. Figures shown are illustrative, are not a rate quote or an offer of credit, and are subject to change. Align Lending is an independent Michigan mortgage broker, NMLS #2041154.