How It Works
USDA loans, officially known as USDA Rural Development Guaranteed Housing Loans, are backed by the U.S. Department of Agriculture. They are designed to help low- to moderate-income households purchase homes in eligible rural and suburban areas. Despite the name, many properties surprisingly close to metro areas qualify under USDA's area eligibility maps.
Like VA loans, USDA loans offer a zero down payment option, making them one of the most affordable paths to homeownership. However, they come with income limits - your household income cannot exceed 115% of the area median income. USDA loans charge a 1% upfront guarantee fee (which can be rolled into the loan) and an annual fee of 0.35% of the outstanding balance, which is significantly lower than FHA's mortgage insurance premiums.
USDA offers two types of programs: the Guaranteed Loan Program (most common, processed through approved lenders) and the Direct Loan Program (for very low-income applicants who work directly with USDA). The Guaranteed program requires a minimum credit score of 640 for automatic underwriting approval, though manual underwriting may be available with lower scores at some lenders.
Who Is This For?
- Homebuyers purchasing in USDA-eligible rural or suburban areas
- Low- to moderate-income households (up to 115% of area median income)
- First-time or repeat buyers who want zero down payment
- Buyers who prefer lower mortgage insurance costs compared to FHA
- Families looking for affordable housing outside dense urban centers
Pros & Cons
Frequently Asked Questions
Where can I use a USDA loan?+
USDA loans are restricted to properties in USDA-eligible rural and suburban areas, which actually cover about 97% of U.S. land area. Use the USDA eligibility map to check a specific address before making an offer.
What is the income limit for a USDA loan?+
USDA loans have income limits set at 115% of the area median household income for the county where the property is located. Limits vary widely by region — check the USDA Income Eligibility tool for your area.
What credit score do I need for USDA?+
Most USDA lenders require a minimum credit score of 640 for streamlined underwriting. Some lenders go lower (down to 580) with manual underwriting and compensating factors like strong reserves.
Are there any down payment requirements?+
No. USDA loans allow 100% financing — zero down payment is required. Closing costs can also often be financed into the loan or covered by seller concessions, making USDA truly accessible.