USDA Loans

Is a USDA loan right for you?

A USDA loan is a great option if you meet the specific income and location requirements. It allows you to purchase a home with no down payment and can offer better rates and mortgage insurance costs than conventional or FHA loans. However, if you are looking to buy in a more urban area, have a higher income, or are purchasing a second home, a conventional loan may be a better fit.

*These materials are not from HUD or FHA and were not approved by HUD or a government agency.

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A USDA loan can be an excellent choice for low- to moderate-income borrowers looking to purchase a home in an eligible rural or suburban area. The key benefits include no down payment requirement, competitive interest rates, and flexible credit guidelines.

Primary advantages of choosing a USDA loan

No down payment: This is often the biggest draw for homebuyers, as it allows for 100% financing. USDA loans are especially helpful for first-time buyers and those with limited savings.
Low interest rates: Because the U.S. Department of Agriculture backs these loans, lenders take on less risk. This enables them to offer lower-than-average interest rates, potentially saving you a significant amount over the life of the loan.
More lenient credit requirements: While most lenders prefer a credit score of 620 to 640 for automated approval, some borrowers with lower scores may still qualify through a manual underwriting process.
Lower mortgage insurance costs: USDA loans require two fees: an upfront guarantee fee and an annual fee. These are generally less expensive than the private mortgage insurance (PMI) required for conventional loans with a low down payment or the mortgage insurance premium (MIP) for FHA loans.
Flexible closing costs: The program allows sellers to contribute up to 6% toward the buyer's closing costs. In certain cases, some or all of the closing costs and the upfront fee can be rolled into the loan.
Fixed-rate financing: Guaranteed USDA loans typically come with a 30-year, fixed-rate term, providing predictable monthly payments for the life of the loan.

Key requirements to consider

USDA loans offer substantial benefits, but strict eligibility requirements limit who can qualify. You should consider these factors carefully before proceeding:

Geographic limits: The property must be located in a USDA-designated rural or suburban area. Many suburban areas are included, but you can check a specific address using the USDA's interactive eligibility map.
Income limits: Your household income cannot exceed 115% of the area's median income. This ensures the program assists low-to-moderate-income families.
Primary residence only: You must occupy the home as your primary residence. It cannot be an investment property or a vacation home.
Program fees: While there is no PMI, you must pay both an upfront guarantee fee (1% of the loan amount) and an annual fee (0.35% of the loan balance, paid monthly). The annual fee is typically required for the life of the loan.
Appraisal and inspection: The property must undergo a USDA-approved appraisal to ensure it is safe, structurally sound, and meets other livability standards.