Requirements, Rates & Income Limits 2024

Are you eligible for the zero-down USDA home loan?

What if you could secure a USDA home loan that allows you to buy a house with no down payment, competitive mortgage rates, and reduced mortgage insurance costs?

It might sound like a dream, but it’s entirely possible with the USDA mortgage program. Designed to assist low- and moderate-income Americans in becoming homeowners, USDA loans provide incredibly affordable financing options for eligible buyers.

Essentially, USDA mortgages empower individuals to transition from renting to owning, even when they thought homeownership was out of reach.

Verify your USDA loan eligibility. Start here

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>Related: How to buy a house with $0 down: First-time home buyer

What is a USDA loan?

USDA loans are mortgages backed by the U.S. Department of Agriculture as part of its Rural Development Guaranteed Housing Loan program. The USDA offers financing with no down payment, reduced mortgage insurance, and below-market mortgage rates.

Verify your USDA loan eligibility. Start here

The USDA mortgage program is intended for home buyers with low-to-average household incomes. In order to qualify, you must also purchase a home in a “rural area” as the USDA defines it. Those who are eligible can use a USDA mortgage to buy a home or refinance one they already own.

USDA loans offer nearly unbeatable benefits for qualified borrowers. So if this program sounds like a good fit for you, it’s worth getting in touch with a participating lender to find out if you’re eligible.

How do USDA loans work?

The U.S. Department of Agriculture insures USDA loans. Thanks to government guarantees and subsidies, lenders can offer 100% financing and below-market interest rates without taking on too much risk.

Verify your USDA loan eligibility. Start here

Although the USDA backs this program, it typically isn’t the one lending money. Instead, private lenders are authorized to offer USDA loans. That means you can get a USDA mortgage from many mainstream banks, mortgage lenders, and credit unions.

The application process for a USDA mortgage works just like any other home loan. You’ll compare rates and choose a lender, complete an application (often online), provide financial documents, wait for the lender’s approval, and then set a closing day.

The only exception is for very low-income borrowers, who may qualify for a USDA Direct home loan. In this case, you’d go straight to the Department of Agriculture to apply rather than to a private lender.

Types of USDA loans

For eligible individuals and families looking to buy, build, or renovate a home in a rural area, the USDA offers three main mortgage loan types. The loan programs are as follows:.

Verify your USDA loan eligibility. Start here

USDA Guaranteed Loans

Approved private lenders, such as banks and mortgage companies, provide USDA loan guarantees to qualified borrowers. A USDA guaranteed loan is one in which the government backs a portion of the loan, lowering the lender’s risk and allowing them to offer more favorable terms to the borrower. These loans frequently have low interest rates, no down payment, and more lenient credit requirements. The property must be in an eligible rural area as the USDA defines it, and borrowers must meet household income requirements that vary depending on location and household size.

USDA Direct Loans

The USDA also offers the Single Family Housing Direct loan through the Section 502 Direct Loan Program. These loans are meant to help low-income families buy, build, or fix up small homes in rural areas. The USDA, rather than private lenders, provides funding for direct loans as opposed to guaranteed loans. These loans have favorable terms, such as low interest rates (as low as 1% with payment assistance) and long repayment periods (up to 38 years for eligible applicants). Income, creditworthiness, and the property’s location in an eligible rural area determine eligibility for direct loans.

USDA Home Improvement Loan

The USDA’s Single Family Housing Repair Loans and Grants program, also known as the Section 504 program, provides financing for home improvements. This program provides low-interest, fixed-rate loans and grants to low-income rural homeowners for necessary home repairs, improvements, and modifications that make their homes safer, more energy-efficient, and more accessible. However, if you’re looking for one, you might have a difficult time finding this type of USDA home loan. They are not widely available from lenders.

USDA loan eligibility requirements

To be eligible for a USDA home loan, you’ll need to meet a number of requirements that vary depending on whether you are applying for a USDA loan guarantee or a USDA direct loan.

Verify your USDA loan eligibility. Start here

Some general requirements, however, apply to all USDA loans, specifically those based on both buyer and property eligibility.

USDA loan property requirements

Eligible rural area

The USDA defines an eligible area in rural America as having a population of 20,000 or fewer. To check if the property you’re considering falls within these designated areas, the USDA’s eligibility site provides all the necessary information. We also provide a USDA eligibility map below.

Single-family primary residence

USDA loans are exclusively available for primary residences. Neither investment properties nor second homes are eligible for this program.

Meet safety standards

The property must adhere to the USDA’s minimum property requirements, which focus on safety, structural integrity, and adequate access to utilities and services.

USDA loan borrower requirements

Income limits

You must meet USDA monthly income limits, meaning your household income can’t exceed 115% of the area median income. Conforming to USDA income eligibility requirements ensures the program is accessible to those it’s intended to serve.

Stable income

Applicants are required to demonstrate a stable and dependable income, typically for at least 24 months, before applying. This helps ensure borrowers can maintain their loan payments.

Creditworthiness

Although USDA loans are known for their flexible credit requirements, creditworthiness is still important. Lenders usually seek a minimum credit score of 640 for guaranteed loans, with USDA Direct Loans potentially having more lenient criteria.

Debt-to-income ratio

Your monthly debt, including future mortgage payments, generally should not exceed 41% of your gross monthly income. However, lenders may make exceptions based on credit score and available cash reserves.

Citizenship status

Applicants need to be U.S. citizens, U.S. non-citizen nationals, or qualified aliens with a valid Social Security number to qualify for a USDA loan.

USDA loan eligibility map

The USDA eligibility map is a valuable online resource for potential borrowers. It helps them identify if a property is situated in an area of rural America that qualifies for USDA home loans.

Verify your USDA loan eligibility. Start here

Users can enter a specific address or explore areas of the map to see if they qualify for USDA guaranteed loans or direct loans by using this interactive map.

¹ Source: USDAloans.com, based on Housing Assistance Council data

USDA loan rates

Compared to other home loan programs, USDA mortgage interest rates are some of the lowest available.

Check your USDA loan rates. Start here

The VA loan, specifically tailored for veterans and service members, stands alongside the USDA loan as one of the few government-backed loan programs offering competitively low rates. Due in large part to the security that government subsidies and guarantees provide, both the USDA and VA programs are able to offer interest rates below the market average.

Other mortgage programs, like the FHA loan and conventional loan, can have rates around 0.5%–0.75% higher than USDA rates on average. That said, mortgage rates are personal. Getting a USDA loan doesn’t necessarily mean your rate will be “below-market” or match the USDA loan rates advertised.

How to get the best USDA mortgage rates

Strengthening your financial standing is essential for obtaining the best USDA loan rates. Here are some helpful techniques for improving your personal finances:

• Boost your credit score. Improving your credit score is an important step toward getting the best USDA loan rates. Taking steps to improve your credit score before applying for a USDA loan often proves beneficial.
• Consider a down payment. While a down payment is not required for USDA loans, it can demonstrate to the lender your commitment to repaying the loan. This could also help lenders find your application more appealing.
• Minimize existing debt. Lowering your debt-to-income ratio (DTI) by paying off existing high-interest debts can make you more appealing to lenders. It demonstrates that you are capable of handling your loan and making payments on time.
• Shop around for lenders. Exploring loan options with multiple participating lenders is a smart move that can save you thousands of dollars over the life of the loan. Comparing their interest rates, fees, closing costs, and loan terms can help you identify the most appealing offer. It’s possible that first-time home buyers will find better options than what USDA loans can offer.

USDA loan costs

When it comes to financing a home purchase with a USDA loan, it’s not just the mortgage rate that you need to consider. You’ll be responsible for various fees and costs, which can add up over time. Understanding these costs upfront can help you make a more informed decision and plan your budget accordingly.

Here’s a breakdown of the expenses you can expect:.

USDA mortgage insurance

The USDA guarantees its mortgage loans, meaning it offers protection to approved mortgage lenders in case borrowers default. But the program is partially self-funded. To keep this loan program running, the USDA charges homeowner-paid mortgage insurance premiums.

Verify your USDA loan eligibility. Start here

Upfront guarantee fee

One of the first costs you’ll encounter is the upfront guarantee fee. This fee is a percentage of the loan amount and is required by the USDA to secure the loan. It’s usually around 1% but can vary. You can either pay this fee upfront or roll it into the loan balance.

Annual guarantee fee

Unlike conventional loans that may not require mortgage insurance, USDA loans come with a monthly mortgage insurance premium. You can expect to pay a 0.35% annual guarantee fee based on the remaining principal balance each year.

The annual fee is broken into 12 installments and included in your regular mortgage payment.

As a real-life example, a home buyer with a $100,000 loan size would have a $1,000 upfront mortgage insurance cost plus a monthly payment of $29.17 for the annual mortgage insurance. USDA upfront mortgage insurance is not paid in cash. It’s added to your loan balance, so you pay it over time.

Inspection fees

Before the loan is approved, the property will need to be inspected to ensure it meets USDA property eligibility requirements. This inspection can cost anywhere from $300 to $500, depending on the location and size of the home.

Closing Costs

Closing costs are a mix of fees that include loan origination fees, appraisal fees, title search fees, and more. These costs can range from 2% to 5% of the home’s purchase price. Some of these costs can be rolled into the loan amount, but it’s best to be prepared to pay some of them out-of-pocket.

How to apply for a USDA home loan

Qualifying for a USDA home loan can be a great way to finance a home, especially if you’re looking to buy in a rural area. These loans offer attractive benefits like zero down payments and competitive interest rates.

However, the USDA loan approval process involves several steps and specific eligibility criteria. Here’s a guide on how to apply for a USDA home loan.

Check your USDA loan eligibility. Start here

Step 1: Check your eligibility

Before diving into the application process, it’s important to determine if you meet the USDA’s eligibility requirements. These typically include:

• A minimum credit score of 640
• A debt-to-income (DTI) ratio of up to 41%
• Income limitations, which vary by location and household size
• The property must be located in a USDA-eligible area

Step 2: Gather necessary documentation

You’ll need to provide various documents to prove your eligibility, including:

• Proof of income eligibility (e.g., pay stubs, tax returns)
• Employment verification
• Credit history report
• Personal identification (e.g., driver’s license, passport)

Step 3: Pre-Qualification

Contact a USDA-approved lender to get pre-qualified for a loan. During this qualifying process, the participating lender will review your financial situation to give you an estimate of how much you can borrow.

Check if you’re eligible for a USDA loan. Start here

Both pre-approval and pre-qualification can give you a better idea of your budget and show sellers that you are a serious buyer.

Step 4: Property search

Once pre-qualified, you can start looking for a property that meets USDA guidelines. Keep in mind that the home must be your primary residence and be located in an eligible rural area.

Working with a real estate agent who has experience with USDA loans can be a big advantage.

Step 5: USDA home loan application

After finding the right property, you’ll need to fill out the USDA loan application. Your lender will guide you through this process, which will include a more thorough review of your financial situation and the submission of additional documents.

Step 6: Property appraisal and inspection

The lender will arrange for an appraisal to ensure the property meets USDA standards. An inspection may also be required to identify any potential issues with the home.

Step 7: Loan approval and closing

Once the appraisal and inspection are complete and all documentation is verified, you’ll move on to the loan approval stage. If approved, you’ll proceed to closing, where you’ll sign all necessary paperwork and officially secure your USDA home loan.

With the loan secured and the keys in hand, you’re now ready to move into your new home!

By following these steps and working closely with a USDA-approved lender, you can navigate the USDA home loan process with confidence. Always remember to consult with your lender for the most accurate and personalized advice.

How do USDA loans compare to conventional loans?

USDA loans and conventional loans both have fixed terms and interest rates, but they’re different when it comes to down payments and fees.

Down payment

USDA loans don’t ask for a down payment, unlike conventional mortgages, which usually require a 3% down payment. FHA loans require a 3.5% down payment. VA loans, like USDA loans, also don’t require a down payment.

Home appraisal

Both USDA loans and conventional loans need an appraisal from an independent third party before the loan is approved.

The home appraisal for a conventional loan determines whether the loan amount and the home’s value match. If the loan amount doesn’t measure up to the market value of the home, the lender can’t get back their money just by selling the house. If you want to know more about the home’s condition, like the roof or appliances, you need to get a home inspector.

For a USDA loan, the appraisal does two things:

• Just like with a conventional loan, it makes sure the home’s value is right for the loan amount.
• It checks if the home meets USDA standards. This means the home should be ready to live in. For example, the roof and heating should work properly. The appraisal also looks at whether the well and septic systems follow USDA rules.

If you’re looking for a detailed report on the house, hiring a home inspector is still a good idea.

Fees

While conventional loans charge private mortgage insurance (PMI) when you make less than a 20% down payment, this isn’t the case with USDA loans. You don’t need PMI for USDA direct or guaranteed loans.

However, USDA guaranteed loans have a guarantee fee of 1% at closing and then an annual fee of 0.35% of the loan, added to your monthly payment. You can roll the initial fee into your loan amount.

Loan terms

The term for a USDA guaranteed loan is 30 years with a fixed rate. If you get a USDA direct loan, you can have up to 33 years to pay it back. If you’re a very low-income borrower, you might get up to 38 years to make it more affordable.

FAQ: USDA loans

Verify your USDA loan eligibility. Start here

Today’s USDA mortgage rates 

USDA mortgage interest rates consistently rank among the lowest in the market, next to VA loans.

USDA loans can be particularly attractive to borrowers seeking optimal financial terms, especially in an environment with elevated interest rates. Prospective homebuyers who meet the criteria for a USDA loan may be able to secure a great deal right now.

To find out whether you qualify for one and what your rate is, consult with a trusted lender below.

Time to make a move? Let us find the right mortgage for you

¹ Source: USDAloans.com, based on Housing Assistance Council data