Yes, you can buy discount points on USDA loans. The USDA guarantee fee is a separate cost. Because USDA loans require zero down payment, the loan-to-value ratio is 100%, which means rates already carry slightly higher risk pricing. Points can help offset that.
USDA Loan Points
Points on USDA loans work the same as other loan types. One point costs 1% of the loan and reduces your rate by roughly 0.25%. With zero down payment, the LTV is 100%, which means base rates are typically a bit higher than conventional loans with 20% down. Points can be more impactful in reducing that higher base rate.
USDA Guarantee Fee
The USDA guarantee fee has two parts: an upfront fee (currently 1% of the loan) that can be rolled into the loan, and an annual fee (0.35% of the balance) paid monthly. These are separate from discount points. The upfront guarantee fee is similar to points in that it is a percentage of the loan, but it does not reduce your rate.
Cost Comparison
On a $300K USDA loan: upfront guarantee fee of 1% ($3,000) is rolled into the loan. Adding one discount point ($3,000) brings total upfront costs to $6,000. The point reduces your rate from 7% to 6.75%, saving about $47 per month. Break-even on the point alone is about 64 months.
When to Use Points on USDA
Points make sense on USDA loans when you plan to stay in the home long enough to reach break-even (5+ years) and you have extra cash at closing beyond what is needed for closing costs. Since USDA buyers are often stretching to afford a home with no down payment, using cash for points may compete with the need for cash reserves, which is an important consideration.