USDA Loans
Who Is This Loan For?
- Buyers purchasing in rural or suburban areas
- Low-to-moderate income households
- First-time buyers with limited savings for a down payment
- Those looking for the lowest possible mortgage insurance
- Buyers in smaller towns or communities outside major metro areas
What Is a USDA Loan?
A USDA loan is a zero-down-payment mortgage backed by the U.S. Department of Agriculture, designed to help low-to-moderate income buyers purchase homes in eligible rural and suburban areas. It’s one of only two major loan programs (along with VA) that requires no down payment at all.
Don’t let the word “rural” mislead you - about 97% of the U.S. land mass qualifies for USDA financing, including many suburban communities just outside major cities. Areas you might not expect to be eligible often are, including parts of North Carolina outside the Charlotte and Raleigh metro cores, and many communities in Florida beyond Tampa, Orlando, and Miami.
The USDA Guaranteed Loan program (the most common type) works through approved private lenders and offers competitive rates, low mortgage insurance, and flexible credit standards. See also our First-Time Homebuyer Guide for a full overview of the buying process.
Not sure which loan fits your situation? Take the quiz or book a free consultation.
USDA Loan Eligibility: Two Requirements
USDA loans have two unique eligibility screens that other loan programs don’t: property location and household income.
Property Eligibility
The home must be in a USDA-designated eligible area. You can check any address at the USDA eligibility map.
What qualifies: Most areas outside the immediate boundaries of cities with populations over 35,000. This includes small towns, rural communities, and many suburbs. You’d be surprised - communities 15-20 minutes outside a metro area often qualify.
What doesn’t qualify: Core urban areas and densely populated suburbs within major city limits.
The property must also be a single-family home that will serve as your primary residence. No investment properties, no multi-unit buildings, and no working farms.
Income Eligibility
Your household income must not exceed 115% of the area median income (AMI) for your county. The 2026 base income limits are:
- 1-4 person household: $119,850 (most areas)
- 5-8 person household: $158,250 (most areas)
- Higher limits apply in high-cost areas (varies by county)
Limits are updated annually, usually in June. Check your specific county limit at the USDA income eligibility tool.
Critical distinction: USDA counts ALL income from every adult (18+) living in the household - not just the borrowers on the loan application. This includes:
- Working adult children living at home
- A spouse who won’t be on the loan
- Elderly parents receiving Social Security
- Any other adult household member’s income
This is different from FHA, VA, and conventional loans, which only count borrower income for qualifying purposes.
USDA-allowed deductions: Some families who appear over the limit may still qualify after these deductions:
- Childcare expenses for children under 12
- $525 annual deduction per elderly household member (62+)
- Certain disability-related expenses
- Medical expenses exceeding 3% of annual income for elderly families
USDA Loan Requirements
Beyond location and income, here’s what you need to qualify:
Credit score: USDA does not set an official minimum credit score. The 640 threshold is for GUS (Guaranteed Underwriting System) automated approval - the fastest path to getting your loan approved. Borrowers below 640 receive a “Refer” recommendation and must go through manual underwriting, which is a harder path but still possible with strong compensating factors like low debt, cash reserves, or stable employment history. Most lenders set their own overlay minimums, typically 620-640. This is similar to VA loans - no government minimum, but practical lender requirements exist.
Down payment: Zero. This is USDA’s biggest draw - no down payment required at all.
Debt-to-income ratio: Standard USDA guidelines are 29% for housing expenses (PITI) and 41% for total debt. GUS may automatically approve higher ratios based on the overall loan profile. For manually underwritten loans, exceeding these ratios requires documented compensating factors such as significant cash reserves, minimal payment increase from current housing, strong residual income, or long-term stable employment. There is no absolute hard cap - waivers are available through the lender.
Employment: Stable income for at least 24 months. Self-employment is allowed with two years of tax returns.
Citizenship: U.S. citizens, permanent residents, and qualified aliens.
USDA Guarantee Fee: The Lowest Cost in Class
USDA’s guarantee fee is the lowest mortgage insurance equivalent of any government loan program.
Upfront guarantee fee: 1.0% of the loan amount
- Can be financed into the loan (rolled into the loan balance)
- Seller or interested party contributions can pay all or part of it
- Calculated on the total loan amount
Annual fee: 0.35% of the remaining loan balance
- Divided into 12 monthly installments
- Lasts the life of the loan
- Decreases each year as your principal is paid down
- Can be eliminated by refinancing into a conventional loan once you have 20% equity
USDA vs. FHA cost comparison on a $250,000 loan:
| Insurance Cost | USDA | FHA |
|---|---|---|
| Upfront Fee | 1.0% ($2,500) | 1.75% ($4,375) |
| Annual Premium | 0.35% (~$73/mo) | 0.55% (~$115/mo) |
| Monthly Savings | - | USDA saves ~$42/mo |
| Cancellable? | No (life of loan) | No (if under 10% down) |
USDA costs $1,875 less upfront and about $42 less per month compared to FHA. While the annual fee lasts the life of the loan, the cost is low enough that the incentive to refinance just to drop it is much smaller than with FHA.
USDA vs. FHA vs. VA
| Feature | USDA | FHA | VA |
|---|---|---|---|
| Down Payment | 0% | 3.5% | 0% |
| Credit Score | No min. (640 GUS) | 500 | No min. |
| Annual MI/MIP | 0.35% | 0.55% | None |
| Upfront Fee | 1.0% | 1.75% | 2.15% |
| Income Limit | Yes (115% AMI) | No | No |
| Location Restriction | Yes (rural/suburban) | No | No |
| Property Use | Primary only | Primary only | Primary only |
Choose USDA if: You’re buying in an eligible area, your household income qualifies, and you want the lowest possible cost of homeownership with no down payment.
The USDA Loan Process
Step 1 - Check eligibility. We verify the property address qualifies on the USDA map and confirm your household income is within limits. This takes minutes.
Step 2 - Pre-approval. Standard credit, income, and debt review. You’ll get a pre-approval letter to shop with.
Step 3 - Home search. Find a home in an eligible area. We’ll double-check any address before you make an offer.
Step 4 - USDA appraisal. Similar to FHA - the appraiser checks value and basic property conditions. USDA appraisals ensure the home has adequate water, sewage, and structural soundness.
Step 5 - Underwriting (two layers). After lender underwriting, the file also goes to your state’s USDA Rural Development office for final approval. This additional step can add 1-2 weeks to the timeline.
Step 6 - Closing. Sign, fund, and move in. Total timeline: 35-50 days (slightly longer than conventional due to USDA office review).
Not sure how much home you can afford? Use our affordability calculator.
Frequently Asked Questions
What areas qualify for USDA loans?
About 97% of U.S. land area qualifies, including many suburban communities outside major cities. Check any address at the USDA eligibility map. Areas just outside Charlotte, Raleigh, Tampa, and other metros often qualify.
What are the income limits for a USDA loan?
Your total household income must not exceed 115% of the area median income for your county. The 2026 base limits are $119,850 for 1-4 person households and $158,250 for 5-8 person households in most areas, with higher limits in high-cost counties. Check the USDA income eligibility tool for your specific county and household size. Remember, USDA counts income from all adults in the household - not just the borrowers on the loan.
Can I build a new home with a USDA loan?
Yes. USDA offers single-close construction-to-permanent loans that let you build a new home in an eligible rural area with zero down payment. The loan guarantee is issued before construction begins, and the construction loan converts to a permanent mortgage upon completion - all in one closing. The builder and plans must meet USDA standards.
How long does a USDA loan take to close?
Typically 35-50 days. The extra time compared to conventional loans comes from the USDA’s own review process, which happens after lender underwriting is complete.
Do I have to be a first-time homebuyer for a USDA loan?
No. USDA loans are available to any buyer who meets income and property eligibility requirements, regardless of whether they’ve owned a home before.
Can I use USDA in a city?
Not within core city limits of larger municipalities. But many communities that feel suburban - shopping centers, good schools, easy highway access - still qualify because they fall outside the USDA’s metro boundary lines. Always check the map before assuming you don’t qualify.
Can I refinance my existing USDA loan?
Yes. USDA offers the Streamlined-Assist refinance for existing USDA borrowers, which requires minimal documentation, no new appraisal, and no new credit qualifying. This is one of the easiest refinance options available if you already have a USDA loan and want to lower your rate.
Does USDA require medical collections to be paid?
No. USDA does not require medical collections or charged-off medical accounts to be paid. Medical debts are excluded from the debt-to-income calculation. This is a significant borrower-friendly policy - medical bills will not prevent you from qualifying for a USDA loan.
What if my household income is slightly over the limit?
USDA allows deductions that may bring your adjusted income below the limit. Eligible deductions include childcare costs for children under 12, a $525 annual deduction for each elderly household member (62+), and certain disability-related or medical expenses. A lender can help calculate your adjusted income to determine eligibility.
Is the USDA guarantee fee the same as PMI?
No. USDA calls it a “guarantee fee” rather than mortgage insurance, though it functions similarly. The key differences: USDA’s annual fee (0.35%) is lower than FHA’s annual MIP (0.55%) and most conventional PMI rates. However, unlike conventional PMI which can be removed at 80% LTV, USDA’s annual fee lasts the life of the loan unless you refinance into a different loan type.
