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USDA loan

Learn what a USDA loan is and how it works.
Discover the benefits of a USDA loan.
Find out the requirements to qualify for a USDA loan.

What is a USDA Loan?

USDA loans are mortgages backed by the U.S. Department of Agriculture. They are also a part of the USDA Rural Development Guaranteed Housing Loan program. This type of home loan is available to home buyers in rural, less-populated areas, with low-to-average incomes.

USDA Loan offers 100% financing with reduced mortgage insurance premiums and features below-market mortgage rates. With a USDA home mortgage, qualifiers could get low-interest rates and 0% down payment.

How USDA loans work

Using a USDA mortgage, buyers can finance all of the home's purchase price while getting mortgage rates better than the average. This happens because USDA mortgage rates are discounted. Furthermore, USDA loans are simple. The repayment schedule is standard, the closing costs are ordinary, and prepayment penalties never apply.

With a USDA loan, you don't need to pay a down payment. However, you are required to take a 15- or 30-year fixed-rate loan. Adjustable-rate mortgages are not available via the USDA rural mortgage program.

Rural loans can be used by both first-time buyers and repeat home buyers. Homeowner counseling is not required to use the USDA program.

What are the BENEFITS of a USDA LOAN?

If you're located in a rural area, the US Department of Agriculture (USDA) offers a home loan program that might be perfect for you. The goal of this program is to help families own a home by offering lower credit score requirements and zero-down payment options. USDA mortgage advantages include:
Low down payment
0% down payment or lower down payment than other loan options for rural areas.
Lower private mortgage insurance (PMI) than other loan programs.
Flexible qualification
More lenient qualifying requirements for borrowers with lower credit scores.


USDA mortgage requirements are usually more flexible than conventional loan requirements. USDA loans are for home buyers with moderate income and smaller down payment capability. Here's what you need to qualify for a USDA loan:

USDA designated area

You must live in a place that fits the USDA's description of a rural area. This could include any area on the map with a population of at most 20,000 (in special cases a population of 35,000 is accepted). To see if the area where you live qualifies, visit this link.

USDA income limits

You must not exceed the maximum USDA income limits for your area. To be eligible, you can't make more than 15% above the local median salary.

Primary residence

You also need to use the house as your primary residence (no investment properties or vacation houses are allowed).

Ability to repay

Borrowers also have to meet USDA's "ability to repay" standards, including a steady job and income, proven by tax returns.

620 Credit score

Your credit score must be at least 620 points. If you don't have a credit score, your lender may accept an "alternate" tradeline to build a credit history.
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USDA mortgage rates are usually the lowest possible rates among loan programs.
USDA rates are usually only matched by the VA mortgage rates, which are exclusively for veterans, military personnel, and their families. That is because the VA loan's government guarantee protects lenders against borrower default.
To get a low mortgage rate, you need low debts, a great credit score, and if possible a bigger down payment.
Both USDA and FHA programs allow a low down payment while requiring mortgage insurance.
USDA can be used with 0% down payment, but the house needs to be located in a qualified rural area, and the buyer's income must be under the local limits.
Although FHA requires a 3.5% down payment to qualify, you don't have income or location restrictions. FHA is also more lenient about credit scores (580 for FHA vs. 620 for USDA).
The right one for you would depend on where you're buying your house and your financial situation.


To help you understand some of the terms and concepts that come with a home buying process, we've created a list of our clients' commonly asked questions regarding a USDA loan.

Is a USDA mortgage loan good?

A USDA mortgage loan is a great option for home buyers with low to moderate income. It lets you buy a home with no down payment and with low mortgage rates. These are significant advantages that only the USDA mortgage loan offers.

If your house is in a qualified area, it's worth checking out a USDA mortgage loan. The principal disadvantage is that USDA mortgage loans require mortgage insurance. So if you can put a 20% down payment, you might want to consider a conventional mortgage loan instead, which comes with no mortgage insurance payment.

Can I refinance my USDA mortgage to get lower mortgage rates?

Yes, USDA loans are eligible for refinancing. The USDA Streamline Refinance Program skips home appraisal as well as credit and income verification when you refinance with them. So yes, you can go for lower rates when refinancing.

What's the maximum USDA mortgage loan size?

There is no size limit for a USDA mortgage loan. However, the amount that participants that can borrow is determined by their household's debt-to-income ratio.

When the borrower can prove their ability to save, has a stable job, or has a credit score of over 660, the debt-to-income ratio will be unlimited. Otherwise, DTI will be limited to 41%.

Can I include the upfront mortgage insurance payment into my mortgage?

Yes, the USDA loan program allows you to finance your upfront mortgage insurance payment as part of your mortgage loan. For example, if you bought a home for $100,000 and borrowed the full amount from your lender, your upfront mortgage insurance would be $1,000. The upfront mortgage insurance is not paid in cash; instead it will be added to your loan balance.

How much are the USDA mortgage loan closing costs?

Closing costs vary by lender, state, and local government. In some states, closing costs are lower than in others. Likewise, some lenders will have high origination charges, while others don't.

I can't afford closing costs. Is it possible to receive a gift for my closing costs?

Yes, it is possible. You could receive a USDA loan gift from either a family member or from non-family members.

Is it allowed to have the seller pay my closing costs?

Yes, sellers may pay closing costs for buyers with the USDA Mortgage Program. This is known as "Seller Concessions." Seller concessions may include all or part of a purchaser's state and local government fees, lender costs, title charges, and any number of home and pest inspections.

Can I use the USDA loan to buy a vacation house?

The USDA loan is for primary residences only; it cannot be used to buy a vacation house.

Can the USDA loan be used to buy an investment property?

The USDA loan is for primary residences only; it cannot be used to buy an investment property.

Can I employ the USDA mortgage loan program in my working farm?

The USDA loan is for residences only; it cannot be used for a working farm.

Can I employ the USDA mortgage loan on a new construction home?

Yes, the USDA loan program covers new construction homes.

Can I use the USDA loan program to make repairs and improvements to an existing home?

Yes, the USDA loan supports eligible home repairs. You can even improve the external areas of your house, like the driveway or tree sites. It can also be used to cover basic repairs such as electrical systems, gas, water pipes, windows, walls, appliances, and more.

Can I employ the USDA loan to improve my house accessibility for persons with physical disabilities?

Yes, you can support persons with physical disabilities at home with the USDA loan program; it can be used to install equipment and devices to provide aid for the handicapped.

Can I make energy-efficiency improvements to a home with the USDA loans?

Yes, the USDA loan allows you to buy and install materials at home dedicated to improving energy efficiency, including windows, roofing, and solar panels.

I recently went back to work. How long until I am USDA-eligible?

W-2 employees are eligible for USDA financing; they don't need a job history. But if you have been working for less than 2 years in the same job, you may not be able to qualify for a USDA loan.

I am self-employed. Can I use the USDA loan program?

Self-employed persons can buy a home with the USDA home loan program. The process is similar to other loan programs where initially you will be required to provide your federal tax returns for the past two years to verify your income.

Can I refinance to get some extra cash with the USDA program?

Refinancing with USDA loans will only allow rate and term benefits. You can only use the program to purchase a house.

If I am using the USDA mortgage program, do I have to escrow my taxes and insurance?

Yes, USDA mortgage loans require that borrower escrow taxes and insurance with a lender.


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Selecting the right mortgage loan is very important. As mortgage brokers we make sure you get the best deal available for your home loan.

Conventional Loan

No PMI required with a 20% down payment.
Can be used for a wide range of property types.
Higher loan limits than some government-backed programs.
Flexible loan terms with adjustable-rate and fixed-rate options.

VA Loan

100% financing available with full VA entitlement.
No private mortgage insurance required (PMI).
No prepayment penalty.
Guaranteed by the government.
Lenders have limitations.
Loans are assumable.

FHA Loan

Low minimum credit score of 500.
Government-insured Loan program.
Flexible qualification for first-time homebuyers.
3.5% down payment with a credit score of 580+.
Closing costs could be paid by the seller, home builder, or lender.


0% down payment or lower down payment than other loan products.
Low private mortgage insurance (PMI).
Easier qualifying requirements for those with lower credit scores.
Can finance 100% of the home's purchase price.
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