A mortgage insurance policy protects a lender against some or most of the losses that can occur when a borrower defaults on a mortgage loan.
You do not mention if the mortgage in question is a "Section 502" loan. I will assume that it is. However, the USDA has been offering loans for several years, and the terms of the loan in question may be different from what the USDA offers today. The USDA Rural Housing Service (RHS) offers guaranteed and direct housing loans.
Section 502 Guaranteed Rural Housing Loan Program loans
The USDA Rural Housing Service (RHS) Section 502 Guaranteed Rural Housing Loan Program is designed to serve rural residents who have a steady, low or modest income, and are unable to obtain a housing mortgage through conventional financing. These loans enable low- and moderate-income rural residents to acquire modestly priced housing for their own use as a residence through the purchase of a new or existing dwelling or the purchase of a new manufactured home.
Section 502 guaranteed loans have 30-year terms and fixed rates at market interest rates. Loans may be for up to 100 percent of market value or for acquisition cost, whichever is less. The RHS charges the lender a one-time guarantee fee of two percent of the loan amount. The lending institution may choose to pass this charge along to the borrower. Therefore, no private mortgage insurance is required. RHS guarantees the loan at 100 percent of the loss for the first 35 percent of the original loan and the remaining 65 percent at 85 percent of loss. The maximum loss payable by RHS cannot exceed 90 percent of the original loan amount.
If the loan in question is a Section 502 guaranteed loan, then private mortgage insurance was not required to be purchased by the borrower because it is already built-into the loan.
Section 502 Direct Rural Housing Loan Program Loans
RHS Direct Loans are loans have 33- or 38-year terms and fixed rates that are directly funded by the US federal government. Like RHS guaranteed loans, direct loans are available for low- and very low-income households to obtain home ownership. Applicants may obtain 100 percent financing to purchase an existing dwelling, purchase a site and construct a dwelling, or purchase newly constructed dwellings located in rural areas.
Like a Section 502 guaranteed loan, a Section 502 direct loan does not require the purchase of private mortgage insurance because it is already built-into the loan.
I hope this information helps you make better money decisions.