Learn About USDA Direct Loans and Eligibility Requirements

Low income households can get a low interest rate!

USDA loan graphicThe USDA Rural Development’s 502 Direct Loan Program offers financing to qualified very-low and low-income applicants that are struggling to secure other forms of financing.
This program is designed to help these individuals obtain safe, affordable housing in eligible rural areas. Learn more about this program and see if you qualify in this article.

What is a USDA Direct Home Loan?

The USDA Direct Home Loan is a 100% financing loan option for eligible home buyers. This loan is available to low- and moderate-income households in rural areas. The USDA designates certain areas as "rural" based on population density. To be eligible for a USDA Direct Home Loan, you must meet the income limits for your county and have a satisfactory credit history.

The benefits of a USDA Direct Home Loan include zero down payment, low interest rates, and flexible credit guidelines. This makes the loan an attractive option for home buyers who may not qualify for other types of financing. If you are interested in learning more about this loan program, please contact your local USDA office.

Types of USDA Loans

If you're a struggling home buyer in the United States, you may be eligible for a USDA direct home loan. This type of loan is offered by the U.S. Department of Agriculture (USDA) to help low- and moderate-income families purchase homes in rural areas.

There are two types of USDA home loans: the USDA single family housing direct loan and the guaranteed loan. The single family housing direct loan and guarantee program is for families who want to purchase a home as their primary residence.

To be eligible for a USDA direct home loan, you must meet the household income guidelines set by the USDA. You also must have a good credit history and the property must be located in a USDA eligible area.

What is the Difference Between a USDA Direct and Guaranteed Loan?

When it comes to home loans, there are a lot of different options out there. Two of these options are USDA single-family direct and guaranteed loan. So, what’s the difference between the two loan programs?

With a USDA direct loan, the US Department of Agriculture provides the funding for your loan. The USDA is the lender.

With a USDA guaranteed loan, the USDA guarantees the loan, but the funding comes from an approved lender.

Both USDA direct loans and USDA guaranteed loans can be used to purchase a home or build a home. If you’re looking for a loan to help you buy a home in a rural area, either of these loan types could be a good option.

See Comparison of Direct and Guaranteed USDA Rural Housing Loan Programs

How Hard is It to Get a USDA Direct Loan?

If you're looking for a loan to buy a home, the USDA Direct Loan program may be a good option. This program is designed for low- and very low-income borrowers who are unable to qualify for a conventional mortgage. Here's what you need to know about eligibility and how hard it is to get a USDA Direct Loan.

In order to be eligible for a USDA Direct Loan, you must have an income that is at or below 50% of the area household income to be considered very low income. Borrowers whose income is between %0% to 80% of the area median income are classified as low income home buyers. You must also be a U.S. citizen or legal resident, and you must have an adequate credit history. If you meet these requirements, you may be able to get a loan with a interest rate as low as 1%.

Does a USDA Loan Require a Down Payment?

The USDA loans do not require a down payment. In fact, the USDA loan program is one of the few 100% financing programs available today. That means that you can finance your home with a USDA loan without having to put any money down.

USDA Direct Loan Minimum Credit Score

There are a few things that potential home buyers should know about the USDA Direct Loan program, especially when it comes to credit score minimums. Here's what you need to know about this important aspect of the loan program. The USDA Single Family Direct program does not have a minimum credit score requirement. Although, the USDA desires a minimum credit score of 620.

If you're interested in applying for a USDA Direct Loan, be sure to check your credit score beforehand. If your score is below 620, you may still qualify for a USDA loan.

USDA Direct Loan Income Limits

USDA income limits graphicIf you're having trouble qualifying for a traditional mortgage, you may be able to qualify for a USDA Direct Loan. These loans are available to low- and very-low-income earners in rural areas. The income limits for these loans vary by county, but you can generally expect to have an income at or below 80% of the median income in your area.

Families with low and very low incomes are the major recipients of USDA direct loans. The borrower's base income must be between 50 and 80 percent of the median income in the region. Extremely low income is below fifty percent of the median income.

The Single Family Housing Direct Eligibility Assessment tool on the USDA's website will help you determine your monthly income for a Direct loan.

The Single Family Housing Income Eligibility tool will determine whether the applicant meets the income guidelines for the 502 Direct loan.

Direct Loan Debt to Income Ratio

Debt to income balancing scaleThe USDA Direct Loan program is designed to help struggling home buyers who may not qualify for a traditional mortgage. One of the key eligibility requirements is a debt to income ratio.

There are two metrics for evaluating the payment and monthly debt ratio. The payment rato consists of the principal, interest, property taxes, and insurance (PITI) which cannot exceed 29 percent of borrower's gross monthly income for very low income,

Low income borrowers have a slightly higher payment ratio of 33 percent.

The second measurement is the debt ratio, also called the back-end ratio. The debt ratio includes the anticipated mortgage payment and monthly debt obligations. Thee total debt ratio cannot exceed 41% for both, with possible exceptions, such as a 2% increase in repayment ratios for applicants whose homes are certified as super-energy-efficient. 

USDA Direct Loan Asset Limits

Another important requirement for the USDA Direct Loan program is that borrowers have assets that fall below certain limits.

Over $15,000 in non-retirement assets must be applied to the purchase of the home (over $20,000 for elderly [62+] or disabled applicants).

This limit is designed to ensure that borrowers are truly in need of assistance and are not using the program as a way to get free money.

Closing Costs on a Direct Loan

When you’re ready to apply for a USDA Loan, one of the first things you’ll need to do is estimate your closing costs. Knowing how much cash you’ll need to bring to the table will help you budget and plan for your new home.

Closing costs can vary depending on the lender, the property location, and the type of loan you get, but there are some general fees that are common across all USDA Direct Loans. These include:

-An appraisal fee to determine the value of the property

-A credit report fee

-Transfer taxes (if applicable)

-Mortgagee recording fees

-A title search and insurance fee to protect the lender’s interest in the event that the borrower defaults on the loan

The good news is that there is no down payment required for a USDA Direct Loan, which means that your closing costs will likely be lower than they would be if you were taking out a conventional mortgage. Additionally, the USDA allows sellers to pay up to 6% of the loan amount towards buyers’ closing costs, which can further reduce your out-of-pocket expenses.

If you’re ready to start shopping for your new home, contact

USDA Guaranty Fee Explanation

The USDA guaranty fee is comparable to the FHA and VA loan programs. All government back home loans require an upfront funding fee. In other words, all applicants pay an intial fee to participate in the loan program. The funding fee is a percentage of the the loan amount. The guaranteed loan program has the lowest funding fee of 1%. This fee is called the guarantee fee by the USDA. There is no guaranty fee with the Direct loan.

What is the Loan Term for a Direct Mortgage?

The term of a Direct Mortgage loan is typically 33 years, however, the loan term can go to 38 years for income challenged borrowers. The benefit of having a longer loan term is that your monthly payments will be lower. You will, however, pay more interest over the life of the loan.

Is There Mortgage Insurance on a Direct Loan?

Borrowers who use a USDA Direct Loan to purchase a home are not required to pay mortgage insurance premium.

Is There a Maximum Loan Amount for USDA Direct Loans?

There is a maximum loan limit. See USDA Area Loan Limits

How Long Does a USDA Direct Loan Take?

If you're eligible for a USDA Direct Loan, you may be wondering how long the process will take. The answer depends on a few factors, but the average time from application to closing is about two months.

Of course, there are always exceptions and some loans may take longer to close. Factors that can impact the timeline include the complexity of your financial situation, the number of parties involved in the transaction, and the availability of documentation.

If you're worried about the timeline for your USDA Direct Loan, the best thing to do is talk to your loan officer. They'll be able to give you a more specific idea of what to expect and help you plan accordingly.

What are the Interest Rates for a USDA Loan?

The interest rates for the USDA Direct Home Loan are set monthly and are extremely low right now. If you are a struggling home buyer, this could be a great opportunity for you to get a loan with affordable monthly mortgage payments.

The current interest rate for a 33-year fixed rate loan is less than 4%. This is significantly lower than the average interest rate for a conventional loan. This low interest rate makes the USDA Direct Home Loan Program an attractive option for home buyers who are struggling to qualify for a traditional mortgage.

USDA Direct Loan Property Eligibility

USDA home loans are only accessible for homes situated in qualifying rural and suburban areas. You may only use a USDA mortgage loan to buy your principal residence. The USDA forbids vacation and investment properties. You cannot occupy a single apartment inside a multifamily structure.

  • The house must be under 2,000 square feet in size.
  • Not have a market value that exceeds the area's maximum borrowing limit. Not be used for activities that generate a profit.
  • The cost, size, and design of housing must be modest.
  • Market value must not exceed area loan limit.
  • Homes must comply with state construction codes and RHS site requirements.
  • Permitted in-ground swimming pool (new change).
  • Subject to environmental evaluation and property inspection.
  • Manufactured homes must be permanently placed, acquired from an authorized vendor, and must be new and never occupied.
  • The Housing Construction and Safety Requirements, as well as the RHS thermal and site standards.

Using the USDA's property eligibility map, you may determine if the property you're considering purchasing is in an eligible area.

USDA Direct Loan Manufactured Home

The USDA offers a direct loan for manufactured homes that helps struggling home buyers in rural areas. The program is designed to help low- and moderate-income families purchase safe and affordable housing. The loan can be used to buy a new or used manufactured home, or to build a new home. The loan is for 30 years, and the interest rate is fixed. There are no down payment or private mortgage insurance requirements.

USDA Direct Vs FHA

There are many different types of home loans available to buyers, and each has its own set of pros and cons. Two of the most popular loan programs are USDA Direct Loans and FHA Loans. So, which one is right for you?

USDA Direct Loans are available to low- and moderate-income borrowers who are looking to purchase a home in a rural area. These loans are 100% financed, meaning there is no down payment required. They also have competitive interest rates and can be easier to qualify for than other loan programs.

FHA Loans are another popular option, especially for first-time home buyers. These loans are backed by the Federal Housing Administration and can be easier to qualify for than traditional mortgages. They also have lower down payment requirements than many other loan programs.

So, which one should you choose? The answer depends on your individual situation. If you are looking to purchase a home in a rural area, then a USDA Direct Loan may be the best option for you. However, if you have less-than-perfect credit or a limited budget for your down payment, then an FHA Loan may be a better fit.

How Do I Apply for a USDA Direct Loan

USDA loan applicationIf you're a struggling home buyer in a rural area, you may be eligible for a USDA Direct Loan. This type of loan is provided by the US Department of Agriculture and can help you purchase or repair a home. Here's what you need to know about getting a USDA Loan.

The first step is to contact your state USDA Rural Development office and inquire about eligibility. You will need to provide proof of income, citizenship, and residency in a rural area. If you are eligible, you will then need to complete an application and submit it to the Rural Development office.

Once your loan application is received, it will be reviewed and processed. If approved, you will be contacted to set up a meeting with a loan officer. At this meeting, you will discuss loan terms and conditions and complete the necessary paperwork.

Once all the paperwork is complete, the loan will be funded and you can begin using it to purchase or repair your home. Remember that the USDA Direct Loan program is designed to help struggling home buyers in rural areas, so make sure to use the loan wisely and only for its intended purpose.


In conclusion, if you are looking for a home and would like to take advantage of the USDA loan program, make sure to follow these simple steps. By doing so, you will be on your way to securing a home loan that is perfect for your needs.

Single Family Housing Direct Home Loans
Direct loan calculator (spreadsheet)

Recommended Reading

  1. How to Get a USDA Loan After Bankruptcy 
  2. Mortgage Payoff Calculator With Extra Principal Payments 
  3. The Step-by-Step Guide to Getting a USDA Direct Loan