What is a USDA Loan?

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A USDA home loan is a mortgage loan guaranteed by the U.S. Department of Agriculture. Its purpose is to enrich communities by providing financing for decent housing in sparsely populated (rural) areas.

USDA loans boast zero down payment requirements and lower-than-average interest rates. The loans are reserved for borrowers who would otherwise have a hard time applying for other loans. For example, they: 

  • can't get traditional home loans;

  • have an income that's less than or equal to the area median income (AMI); and/or

  • don't have safe, clean, and dignified housing.

As mentioned, the loans are designed for sparsely populated areas. This automatically qualifies rural areas, but they could also be used in suburban areas. So, if you're an urbanite, you can still benefit from the program.

Aside from handling direct home loans, the USDA home loan program also offers additional funding, like:

  • Loan Guarantees  The USDA guarantees loans that private lenders give to qualifying participants, possibly without a down payment. If you pay little or no down payment, then you should expect to pay a mortgage insurance premium.
  • Home Improvement Loans and Grants  These are funds to use for home upgrades.


Types of USDA Loans

There are a few different home loan options under the USDA loan program. While all of the USDA mortgage solutions share the low-interest and zero-down-payment requirement, they do have different terms and purposes. Below are summaries of each USDA loan product.

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Single Family Direct HOME OWNERSHIP USDA Loan

This USDA loan was designed to help low-income families in rural areas buy, renovate, or repair adequate housing. Eligibility is restricted to families whose household income falls below 80% of the AMI. 


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Single Family Guaranteed Housing USDA Loan

This is a USDA loan for moderate-income households that make no more than 115% of the AMI. This package is meant to be used for modest housing in rural areas.


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Rural Repair and Rehabilitation USDA Loans and Grants

Rural households that make less than 50% of the AMI and that don't have access to affordable credit from other sources can use this USDA loan product to fix or improve their homes (removing any health hazards, increasing safety, etc.).


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Mutual Self-Help USDA Loans

The USDA Mutual Self-Help loan is for low-income households that can't buy or build adequate housing. The program allows qualified organizations to monitor and help homeowners in the construction of safe, clean housing. 


Qualifying for a USDA Loan

To qualify for a USDA loan:

  • The house must be in an area with a population of less than 20,000 or in a USDA-approved area.

  • The house must meet the program's criteria regarding quality, safety, and location.

  • Your income must be no more than 115% of the AMI. (Use the USDA income map to check the income limit of your area.)  

  • You must be a U.S. citizen, U.S. non-citizen national, or "qualified alien."

  • Your monthly payment for the loan (principal, interest, insurance, and taxes) may not exceed 21% of your income.

  • Total debt payments (car, credit card, etc.), including the mortgage, can't exceed 41% after taking up the loan. Exceptions may be made if your credit score is above 660.

  • A minimum credit score of 640 required. If your credit score is 640 or higher, then your application will move swiftly. If it's less than 640 or you have no credit score, then the lender will require a financial history (rental, tuition, bill payments, etc.) to make an assessment.  

Check your address's eligibility, income limits, and income eligibility for areas across the U.S. on the USDA's website.


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USDA Loan Pros:

  • You pay lower mortgage insurance than you would with conventional or FHA loans.  

  • It has more lenient credit terms than conventional or FHA loans.

  • There's no limit on the loan amount that may be borrowed; it mostly depends on your income level.

  • Despite perceptions, it's available for a lot of areas and individuals.

  • It's the only loan program available to civilians that requires no down payment.

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USDA Loan Cons:

  • Your choice of homes is restricted to eligible areas.

  • The loans are available to only single-family, owner-occupied homes.

  • Mortgage insurance premiums are paid up front and annually.


How to apply for a USDA loan

Applying for a USDA loan with home.loans is relatively simple. We will:

  • help determine your eligibility for a USDA loan; and

  • connect you with approved lenders.

Get Started With Your USDA Loan Today!


USDA Loan Knowledge Base