A USDA loan is an excellent option for low-income families looking for a 0% down payment or exploring homes in rural or suburban areas. The U.S. Department of Agriculture backs these mortgages to encourage homeownership in less densely populated areas. Unlike other home loans, these often require zero down payment and offer attractive interest rates. Whether you're a first-time homebuyer or looking for a change of scenery, understanding the different types of USDA loans, rates and requirements is worth understanding. Having the necessary information can help you see if a USDA loan is right for your homeownership dreams.

What Is a USDA Loan?

A USDA home loan is a mortgage option that promotes homeownership in rural and suburban areas. USDA loans are backed by the government, which makes lenders more willing to lend to you. It also translates into some great perks, like lower interest rates and a more streamlined approval process.

One of the biggest advantages is the focus on low-to-moderate-income families. If you fall into this category, you could get a home without putting any money down. USDA loans often require zero down payment; they also come with reduced costs, making homeownership more accessible for many people.

Types of USDA Loans

Knowing the different types of USDA loans can help you make the most of your home-buying journey. By understanding the variations, you can pick the one that matches your needs, making the whole process more straightforward and beneficial.

Our table below details the types of USDA home loans available.

What It Is
Who It’s Best For

These loans are offered through lenders approved by the USDA. While you're responsible for securing and repaying the loan, the government guarantees up to 90% of the loan value, making it less risky for lenders and often resulting in better terms for you.

Best for individuals with moderate incomes who wish to have a broader selection of lenders and slightly better rates.

This loan comes directly from the USDA. Its main objective is to make homeownership achievable for low-income families. It offers subsidies to keep monthly mortgage payments affordable and may allow for longer repayment periods.

Ideal for low-income families who need extra financial help. These loans offer the most flexible terms to make homeownership attainable.

Specifically designed for home improvements, this category includes loans and grants. Loans must be repaid, while grants are free money. Both aim to enhance home safety, remove health hazards or improve energy efficiency.

Perfect for existing homeowners in eligible areas who need to improve their living conditions but may not have the funds to do so upfront.

So, whether you're looking to buy, improve or build a home, USDA home loans offer a variety of options to consider. Remember, the right loan for you depends on your individual circumstances, so take time to weigh the benefits of each.

Comparing USDA Loans to Conventional Loans

A conventional loan is a type of mortgage that is not backed by any government entity. Because of this, they can have stricter credit requirements and often require a higher down payment. Understanding the difference between USDA loans and conventional loans can guide you to the mortgage that best fits your financial situation and homeownership goals.

Here’s a comparison table that shows the differences between USDA and conventional loans.

Comparison Areas
USDA Loans
Conventional Loans

Down Payment

Often 0 down payment required.

Requires a down payment; 20% down is required to avoid private mortgage insurance costs.

Credit Score Requirement

Flexible, generally starting around 640.

Typically requires higher scores, around 620 or higher.

Interest Rates

Usually lower due to government backing.

Can be higher, varies widely depending on lender and credit score.

Property Location

Must be in a designated rural or suburban area.

No location restrictions.

Income Requirements

Income limits apply, geared towards low-to-moderate-income families.

No official income limits, but higher income generally needed for approval.

Understanding these key differences can help you better assess which mortgage option aligns with your situation. If you’re leaning towards rural or suburban living, USDA home loans may offer financial benefits that a conventional loan can’t match. So take a moment to weigh these options — your ideal home could be just a loan away.

How USDA Home Loans Work

USDA loans work differently than other mortgages. First, they're offered by USDA-approved lenders, which have met certain standards set by the government. Your loan amount is usually determined by your income and debt levels to ensure you can afford the payments. Regarding repaying, you'll find options like fixed-rate terms, usually spanning 15 to 30 years. But be careful — there are ways you can become ineligible after getting the loan. For instance, if your income suddenly increases beyond the set limit, you might have to refinance into a different loan type. So, keep an eye on life changes that could affect your loan status.

Understanding USDA Home Loan Rates

USDA home loan rates often come with a pleasant surprise — they're generally lower than conventional loans. It can make a significant difference in your monthly payments and the total interest you'll pay over the life of the loan. However, several factors may affect your USDA home loan rates. Here are some of them:

  • goodCredit icon

    Credit Score

    A higher credit score can lead to a more favorable interest rate. Although USDA loans are more lenient with credit requirements, your score still plays a role.

  • money icon

    Debt-to-Income Ratio

    This ratio measures how much of your monthly income goes towards debt payments. Lenders view a lower DTI ratio more favorably; this could result in a better interest rate.

  • loanPro icon

    Loan Term

    USDA loans commonly have terms of 15 to 30 years. Generally, a shorter loan term might have a slightly lower rate, but the difference is often minimal, given the nature of USDA loans.

  • bigHouseRent icon


    Although USDA loans are designed for rural and some suburban areas, rates might vary slightly depending on the specific location of the property.

  • loanReview icon

    Lender's Policies

    Different lenders may offer different rates. Some might offer discounts for existing customers or those who set up automatic payments.

  • variableRate icon

    Market Conditions

    Broader economic factors, like the Federal Reserve's actions or economic indicators, can also affect interest rates, though USDA rates are generally stable.

USDA home loan rates offer flexibility and affordability. To make the most of this, consider locking in a rate when you find one that suits your budget. And remember, it's always a good idea to compare rates from multiple lenders to find the best deal.

Pros and Cons of USDA Home Loans

USDA home loans offer some attractive advantages, like no down payment and potentially lower interest rates. Focusing only on the upsides might cause you to overlook certain drawbacks, like limited property choices. Knowing both the pros and cons of USDA home loans can help you make a more informed decision. Our table below provides more details.

Pros and Cons

plusSign icon


  • No Down Payment: You can finance up to 100% of the property’s value, easing the upfront financial burden.
  • Lower Interest Rates: Thanks to government backing, interest rates are generally lower than conventional loans.
  • Flexible Credit Requirements: USDA lenders can be more forgiving of lower credit scores. While 640 is generally the minimum, no set minimum credit score requirement exists.
  • No Prepayment Penalty: You can pay off your loan early without any additional fees.
minusSign icon


  • Geographical Restrictions: These loans are for rural and some suburban areas, which might limit where you can buy.
  • Income Caps: There are income limits based on your household size and location, which might disqualify you.
  • Fees: While there's no down payment, you'll still have to pay certain fees like a guarantee and an annual fee.
  • Closing Costs: In most cases, closing costs will be included in the loan amount.
  • Limited Property Types: Only specific types of properties are eligible, like single-family residences.
  • Long Approval Process: Government-backed loans often take longer to process compared to conventional loans.

Understanding the benefits of a USDA home loan and its potential drawbacks equips you to choose what's right for your financial situation and lifestyle. Always weigh both sides carefully to ensure this is the right path for your homeownership journey.

USDA Loan Requirements

Knowing the requirements for a USDA home loan in advance can save you both time and disappointment. It allows you to assess whether this option is within reach before diving too deep into home-buying. It also helps you understand what steps you might need to take to become eligible, like improving your credit score or searching for homes in specific areas.


Being a U.S. citizen, non-citizen national or qualified alien is essential for eligibility. It’s a straightforward requirement that aligns with many other types of loans and governmental assistance programs.


A unique feature of USDA loans is the geographical requirement. The property you're eyeing must be in a USDA-eligible area, generally rural and certain suburban locations. It doesn't mean you must move to a remote village — many eligible areas are just outside bustling cities. The USDA offers an online tool to check property eligibility, which can be a helpful resource.


The income limit for USDA loans varies by location and household size, but it's generally targeted toward low-to-moderate-income families. For most of the U.S., the income limit is set at $110,650 for a family of 1 to 4. In some higher-cost counties, these limits may be increased.

These limits account for the total income of everyone in the household, not just those listed on the loan application. Knowing these ahead of time can sharpen your focus when looking for a home, ensuring you're considering properties in areas where you're likely to meet the income requirements.

Credit Score

A minimum credit score of 640 is often required for automated approval, but lenders might allow lower scores with sufficient documentation and explanations. Improving your score can help you qualify and get you a better interest rate.

Debt-to-Income Ratio (DTI)

Lenders usually look for a debt-to-income ratio of 41% or less. However, this can be higher in some cases if you have compensating factors such as a higher credit score or significant savings. Your DTI is calculated by dividing your total monthly debt by your monthly gross income.

How to Apply for a USDA Loan

Knowing the steps to secure a USDA home loan can take the uncertainty out of the process, making your path to homeownership smoother. Being prepared can speed up the loan approval, saving you time and potentially money. Here are the steps you'll need to follow.


Check Your Eligibility

First, you'll want to confirm you meet the eligibility criteria, which include income, credit score and U.S. citizenship or permanent residency. Knowing these specifics upfront helps you avoid any surprises down the line.


Research USDA-Approved Lenders

Only some lenders are authorized to offer USDA loans. Spend some time researching to identify those that are USDA-approved. Consider asking for recommendations and reading customer reviews to understand which lender might be the best fit for you.


Get Pre-Approved

Pre-approval is more than just a preliminary chat with a lender. You'll need to submit financial documents, such as tax returns and pay stubs, for a thorough review. A pre-approval letter strongly indicates your buying power and shows sellers that you're a serious candidate.


Find a USDA-Eligible Property

The property must be located in an area designated by the USDA as rural or suburban. Use the USDA's online maps to identify eligible areas and work with a real estate agent familiar with USDA loans to find properties that meet all the criteria.


Submit Your Application

After identifying a property, you'll submit a full loan application. This includes a range of documentation like proof of income, employment verification and a record of your assets. The lender will provide a checklist of what's needed.


Property Appraisal

A USDA-approved appraiser will evaluate the property to ensure it meets all USDA standards related to safety, structural integrity and overall condition. The appraisal must support the loan amount you're seeking.


Loan Processing and Underwriting

This is the "make-or-break" phase. The lender will carefully review your application. They'll double-check the property's eligibility, your creditworthiness and ensure all other requirements are met. You may need to submit additional documents during this phase.



You'll meet with various parties involved in the loan process to sign legal documents. This is when you'll pay any remaining closing costs, after which the property is yours.

Understanding how to apply for a USDA home loan can make the process much easier to navigate. Each step offers challenges and opportunities, so take your time and don't rush.

USDA Loan Fees

Understanding the fees associated with USDA home loans helps you budget accurately and make smarter financial choices. When you know what to expect, there are fewer surprises and you can plan accordingly. Here’s a rundown of the fees you might encounter:

  • Upfront Guarantee Fee: This is a one-time fee to secure your loan, usually 1% of the total loan amount. If your loan amount is $200,000, the upfront guarantee fee would be $2,000. This fee goes directly to the USDA to fund the program and can often be rolled into your loan amount.

  • Annual Fee: This fee is ongoing and is paid monthly. It’s typically 0.35% of the remaining loan balance for the year. On a $200,000 loan, the first-year annual fee would be around $700, or roughly $58 per month. This fee decreases as you pay down your loan.

Besides these, you might also encounter these additional costs:

  • Inspection Fees: Before closing, you'll need to pay for a home inspection, which varies but can cost around $300 to $500. This is to make sure the property meets all health and safety regulations.

  • Application Fees: Some lenders may charge a fee just to process your application, though this isn't standard for all lenders. Make sure to ask upfront.

  • Late Fees: If you miss a payment, you'll be hit with a late fee. The amount can vary, but it's usually a percentage of your monthly payment.

By being aware of all these, you can budget more effectively. You can even use this knowledge to negotiate where possible. Remember to always ask your lender for a detailed fee breakdown — it's one of the best questions you can ask when securing USDA home loans.

Expert Insights on USDA Loans

  1. Why should borrowers consider a USDA mortgage loan?
  2. Who are the best candidates for USDA mortgage loans?
  3. How can a borrower best prepare to qualify for a USDA mortgage loan?
  4. Are there any drawbacks to getting a USDA mortgage loan?
Julienne Joseph
Julienne Joseph

Associate Director of Government Housing Programs at the Mortgage Bankers Association

Eric Young
Eric Young

Visiting Assistant Professor of Economics at Loyola Marymount University

Frequently Asked Questions About USDA Home Loans

A USDA home loan is a unique financial product — not everyone is familiar with it, so having questions is common. To provide you with more information, we’ve gathered the questions borrowers typically ask about this mortgage type.

About Christopher Boston

Christopher Boston headshot

Christopher Boston is a Senior Manager of Content Strategy and SEO at MoneyGeek. For over half a decade, they have crafted hundreds of articles spanning the higher education, mortgage and personal loan industries. Christopher is passionate about using their skills and experience to create quality content that helps people save and spend their earnings efficiently.