Get the Facts on USDA Loans

Learn all about the USDA loan program.

What is a USDA Loan?

Nice rural homeUSDA loans are mortgages guaranteed by the U.S. Department of Agriculture. And designed to provide affordable housing financing in rural areas. This type of loan is called a Rural Development Loan or RD Loan.

The primary purpose of USDA loans is to help individuals and families purchase homes in eligible rural areas without access to traditional financing options such as a conventional mortgage.

In addition, interest rates are typically lower than those offered through conventional mortgages. The USDA believes that helping rural families become homeowners strengthens communities and enhances the quality of life in rural America.

Borrowers applying for a loan from the USDA must fulfill specific income standards and provide evidence that they are creditworthy. In addition, the property must be situated in an approved rural region, which means it must be outside the municipal boundaries or have less than 10,000 residents.

USDA Loan Requirements

USDA requirements binderObtaining a USDA loan is a great way to finance your home purchase in a rural area of the country. To qualify for this mortgage, borrowers must meet specific loan requirements by the U.S. Department of Agriculture (USDA).

The USDA's guidelines ensure that borrowers have enough income and creditworthiness to repay their loans on time and in full.
One of the most crucial requirements is the household income; to be eligible for a USDA loan, applicants must show that the yearly gross income of their household does not exceed the stated household income for their area.

Borrowers must also show proof of employment and provide details about any other sources of income they may have. Additionally, applicants must have satisfactory credit scores, histories, and enough funds to close costs after making their down payment.

USDA Loan Limits

Unlike FHA and conventional loans, USDA loans do not have a lending limit. I know it's hard to believe, but it's true. The borrower's debt-to-income ratio establishes the maximum loan amount.

Types of USDA Loans

There are three different types of USDA loans that you can choose from: 

Single Family Housing Direct Home Loans

If you're looking for a low-cost financing solution for your home purchase, the Single Family Housing Direct Home Loan may be perfect for you. This USDA-backed loan is designed specifically for low and very low-income families, so you can avoid qualifying issues. Plus, the application process is simple – just gather the necessary documentation and submit it to a USDA office.

Direct offers borrowers a 33-year term with low-interest rates, making it an attractive option for those looking for a long-term mortgage. You may apply directly to a USDA office for approval without going through a bank or other financial institution; this expedites and simplifies the procedure.

Single Family Housing Guaranteed Loans

The Single Family Housing Guaranteed Loan is for low- and moderate-income families who cannot get a loan from a private lender. The USDA guarantees the loan, meaning the lender is protected if the borrower defaults.
 The Guaranteed loan is a zero down payment home loan. Application is made to an approved USDA lender.

Section 504 Home Repair Program

USDA homeowners with very low incomes can apply for assistance under the Section 504 Home Repair program to have their homes repaired, remodeled, or updated. In addition, it provides financial aid through grants to older citizens who own their own homes but have minimal incomes.

USDA Direct Loan Program

The Direct Loan Program of the United States Department of Agriculture (USDA) is intended to provide individuals and families living in rural areas with modest incomes the opportunity to purchase a house at a reasonable price.
 This federally funded program assists those with low and very low incomes who are otherwise unable to secure traditional financing for a home loan. USDA direct loans can be used to buy, build, or repair a primary residence in an eligible rural area. 
Eligible borrowers must have an income below the adjusted median income limit set by the USDA and are subject to credit requirements as established by the agency. 
 Typical repayment terms for these loans include an extremely low-interest rate and no down payment. However, borrowers may be required to pay some loan-related closing and prepaid costs. The standard loan period is 33 years, although it may be extended to 38 years for specific candidates.

Guaranteed Loan Program

The USDA Single Family Housing Guaranteed Lending Program is a government-backed loan program that offers mortgage choices to rural people and families who may not qualify for traditional loans.

This program provides more liberal lending requirements and access to cash, allowing many borrowers with modest salaries to fulfill their goal of home ownership. The Guaranteed loan is the traditional 30-year fixed-rate mortgage, and application is made to USDA-approved mortgage lenders.

USDA Loan Income Requirements

To be eligible for a house loan, all family members' total income must be more than the USDA's county-specific maximum income limit.

1-4 member households are $103,500
5-8 member households are $136,600

In addition, applicants must meet debt-to-income ratio requirements established by each lender to qualify for a USDA loan. Income Lookup 

USDA Loan Credit Score Requirements

Credit score graphicCredit score requirements are important for those interested in purchasing a home and taking advantage of the many benefits of applying for a USDA loan.

A credit score is a quantitative representation of a person's creditworthiness, which lenders use to estimate the probability of loan and other debt payback. The United States Department of Agriculture (USDA) sets minimum credit score requirements for applicants who want to apply for USDA loans.

The USDA loan program has no minimum credit score requirement; however, a score of at least 640 is preferable. Additionally, borrowers must demonstrate that they can afford their housing payments and other homeownership expenses. The USDA (and lenders) use the standard debt-to-income ratio to determine whether the applicant(s) can pay the monthly loan payment.

USDA Loan Down Payment Requirement

The USDA loans do not require a down payment.

USDA Guarantee Fee

The United States Department of Agriculture (USDA) Guarantee Fee is a fee that helps keep the USDA home loan program running. Established in 2002, this fee covers the cost of administering the USDA's Single Family Housing Guaranteed Loan Program (SFHGLP).

The fee was initially set at 2 percent of the loan amount but has since been reduced to 1%. The guarantee fee can be rolled into borrowers' monthly mortgage payments.

This fee helps fund all aspects of administering the SFHGLP, including processing and servicing loans and making necessary repairs on properties with existing USDA-backed mortgages.

It also allows lenders to cover the costs of originating, underwriting, and closing USDA-guaranteed loans. Sometimes, lenders may pass these costs to borrowers by charging an additional origination or administrative fee.

USDA Annual Fee

In addition to the 1% guarantee fee, borrowers must pay an annual fee. The cost is calculated annually and broken into 12 payments included in the borrower's mortgage payment. The yearly fee is the USDA's version of private mortgage insurance, and the cost is less than the FHA PMI.

USDA Loan Terms

The loan term for the guaranteed loan is 30 years. The base term for the Direct loan is 33 years but can be extended to 38 years for qualifying home buyers.

USDA Gift Funds for Closing Costs and Down Payment

The USDA allows gift money from relatives to provide gift funds to help pay the closing and prepaid costs.

USDA Loan Cosigner

Nice country homeA USDA loan can be an excellent option for borrowers purchasing a home in rural and suburban areas. A cosigner may be necessary for those who need to meet the required monthly income and credit requirements for the loan.

To qualify as a USDA loan cosigner, you must understand your role and how to help someone else get approved for such a loan.

When applying to become a cosigner on an application, you must meet specific requirements set by the U.S. Department of Agriculture (USDA). You must have sufficient income, good credit history, and availability of liquid assets to ensure timely payments on behalf of the borrower will be made if needed.

USDA Loan Seller Concessions (seller assist)

The USDA permits home sellers may contribute up to 6% of the sales price toward the buyer's closing and prepaid costs, provided the sales concession is agreed to by the seller and is made part of the sales contract.

Benefits of a USDA Home Loan

The USDA home loan program has several benefits that make it an appealing choice for people seeking financing for a new house. By providing no down payment on the property's purchase price, this type of loan makes it easier for low-income households to become homeowners without having to come up with a large amount of cash upfront.

 Furthermore, borrowers can receive up to six percent seller concession that can be applied towards closing costs or other expenses associated with the purchase.


In conclusion, a USDA loan is an excellent option for those who cannot qualify for traditional home mortgages and want to become a homeowner. It offers many advantages, such as low down payment, no mortgage insurance, lenient credit requirements, and lower interest rates.

Additionally, it can be used to purchase existing homes or build new ones. Therefore, the USDA loan is an ideal way to achieve homeownership and realize the dream of owning a home.

SOURCE: Single Family Housing Programs