Understanding USDA Loans: Eligibility and Requirements Explained

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Reviewed byTimothy Manni
Contributions by2 experts
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Reviewed byTimothy Manni
Edited byJonathan Ramos
Contributions by2 experts
fact checked icon

Updated: May 10, 2024

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USDA home loans offer an affordable path to homeownership with minimal to no down payment, tailored for eligible rural and suburban homebuyers. Unlike conventional mortgages, these government-backed loans have below-market interest rates and reduced fees, making them an attractive option for purchasing, renovating or refinancing a home.


What Is a USDA Loan?

A USDA mortgage loan is designed to foster homeownership in less densely populated rural and suburban areas. These government-backed loans offer borrowers benefits like lower interest rates and a streamlined approval process. They target low-to-moderate-income families, enabling many to buy homes with zero down payment and lower overall costs.

USDA loans require approval from USDA-qualified lenders and are primarily influenced by the borrower’s income and debt-to-income ratios to ensure affordable repayments. Fixed-rate terms generally range from 15 to 30 years. However, if your income increases and exceeds the program’s threshold, you may need to refinance your mortgage into another loan type.

Types of USDA Loans

USDA loans come in three types. Understanding their differences allows you to choose the right loan for your situation. Our table guides you through the specifics of each one.

USDA Loan Type
Interest Rate
Who Should Get One

USDA Guaranteed Loan: A loan provided by private lenders and backed by the USDA

Private lenders

Varies, generally competitive

Individuals with moderate incomes who want a broader selection of lenders and slightly better rates.

USDA Direct Loan: Aimed at low- and very-low-income applicants

USDA directly

4.5% (as low as 1% when modified by payment assistance)

Low-income families that need extra financial help; these offer the most flexible terms.

USDA Home Improvement Loans and Grants: For repairs and upgrades, can be a loan, grant or a combination

USDA directly

Fixed at 1%

When needing to repair or improve an existing home

Understanding USDA Loan Fees

While USDA home loans have lower interest rates, you’ll encounter certain fees. Understanding these will allow you to manage your budget more effectively:

  • Upfront Guarantee Fee: This one-time fee secures your loan and is generally 1% of your total loan amount. For instance, on a $200,000 loan, this would amount to $2,000. This fee can typically be financed into the loan amount.

  • Annual Fee: This ongoing fee is calculated at about 0.35% of the remaining loan balance per year, payable monthly. On a $200,000 loan, the first year's annual fee would be approximately $700, decreasing as the loan balance is paid down.

USDA home loans may include other costs, such as inspection, application and late fees. Be sure to ask about these to get a complete picture of your loan expenses.

Pros and Cons of USDA Loans

Explore the unique advantages and disadvantages of USDA loans in the table below to see if they align with your financial goals and circumstances.


USDA Loans Requirement

Understanding USDA loan requirements lets you determine your eligibility. Here’s what you need to consider:


Meeting USDA loan requirements can lead to affordable homeownership in qualified rural and suburban areas. Review these criteria to ensure you align with them.


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, double-check the property's eligibility and 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.

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You can refinance a USDA home loan under specific conditions. For example, your original loan must be USDA-financed or guaranteed and at least 12 months old. The refinanced loan offers a fixed interest rate with a 30-year term and requires borrowers to meet income guidelines, occupy the property and have no cash out from equity. Properties in newly ineligible areas remain qualified for refinancing, ensuring wider accessibility.


Frequently Asked Questions About USDA Loans

We answered some common questions to clarify the application process and requirements. Explore these to gain a deeper understanding of how USDA loans work and how they could benefit your home-buying journey.

Are USDA loans only for first-time homebuyers?
How does the USDA define "rural" for loan eligibility?
What happens if my income increases after getting a USDA loan?
Is mortgage insurance required for a USDA loan?
Can I get an adjustable-rate USDA mortgage loan?