Key takeaways
- USDA Guaranteed loans require no down payment for homes in eligible rural and many suburban areas.
- Household income generally can't exceed 115% of the area median income, and the limit counts everyone in the household, not just borrowers.
- Fees include a 1% upfront guarantee fee and a 0.35% annual fee.
- Check addresses on the USDA eligibility map before you fall in love with a house.
The USDA Single Family Housing Guaranteed Loan Program is one of the few ways to buy with no money down if you're not a veteran. Many buyers skip it, assuming "rural" means farmland. In reality, plenty of small towns and outer suburbs qualify. The two tests that matter are where the home is and how much your household earns.
Test 1: the property must be in an eligible area
USDA publishes an online eligibility map. Enter any address and it tells you whether the property is in an eligible area. Generally, areas outside larger cities and metro cores qualify. Eligibility boundaries are updated periodically, so check the specific address rather than relying on what was true a few years ago.
The home must also be your primary residence, be modest in size and design for the area, and meet basic safety and condition standards confirmed by the appraisal.
Test 2: household income limits
For guaranteed loans, total household income generally can't exceed 115% of the median income for the area. The limit varies by county and household size, with one limit for households of one to four people and a higher limit for five to eight people.
Key details people miss:
- Household income includes all adult household members, even those not on the loan, such as an employed adult child living at home.
- Allowable deductions reduce the income counted, including deductions for dependents, childcare expenses, elderly household members and certain medical costs.
- Qualifying income for the loan itself is separate and only counts borrowers.
USDA's eligibility site includes an income calculator that applies these deductions for your county.
USDA loan fees
| Fee | Amount | Notes |
|---|---|---|
| Upfront guarantee fee | 1.00% of the loan | Can be financed into the loan |
| Annual fee | 0.35% of the remaining balance | Paid monthly with your mortgage payment |
These fees are lower than FHA's mortgage insurance, which is one reason USDA can be the cheapest low-down-payment loan for eligible buyers.
Credit and debt requirements
- USDA doesn't set a hard minimum credit score, but most lenders look for 640 or higher for automated approval through USDA's underwriting system.
- Debt-to-income guidelines are generally 29% for housing and 41% total, with flexibility for strong files.
- You must not already own an adequate home in the area.
Example: a family of four earning $92,000 looks at a home 25 minutes outside a mid-sized city. The address shows as eligible on the USDA map. Their county's income limit for a four-person household is higher than their adjusted income after childcare deductions, so they qualify. On a $260,000 home, the 1% guarantee fee of $2,600 is financed, and they bring only closing costs, some of which the seller agrees to cover.
USDA vs. other low-down-payment loans
| USDA | FHA | Conventional 3% | |
|---|---|---|---|
| Down payment | 0% | 3.5% | 3% |
| Income limit | Yes | No | Only for some programs |
| Location limit | Eligible areas only | No | No |
| Upfront fee | 1% | 1.75% | None |
| Annual insurance/fee | 0.35% | 0.55% (most borrowers) | PMI varies by credit |
Direct vs. guaranteed USDA loans
USDA also offers Direct loans (Section 502), which are made by USDA itself to low- and very-low-income households and can include payment assistance that reduces the effective interest rate. Funding is limited and processing is slower. Most buyers use the Guaranteed program through a private lender.
Steps to get a USDA loan
- Check the property address on the USDA eligibility map.
- Use the USDA income calculator for your county and household size.
- Find a USDA-approved lender and get pre-approved.
- Make an offer, allowing extra time because USDA loans require final review by USDA after the lender approves the file.
- Complete the appraisal, which must show the home meets USDA property standards.
- Close once USDA issues its conditional commitment.
USDA's final review can add a few days to a couple of weeks, depending on the region and time of year. Ask your lender about current turn times and set your closing date accordingly.
Frequently asked questions
Do I have to be a first-time buyer?
No, but you generally can't own another adequate home in the commuting area.
Can I use a USDA loan for a farm?
No. USDA home loans are for single-family primary residences, not income-producing farms.
Can closing costs be financed?
If the home appraises above the purchase price, some closing costs can be included in the loan. Seller concessions up to 6% are also allowed.
