A USDA loan is a government-backed mortgage program offered by the U.S. Department of Agriculture to help low-to-moderate income buyers purchase homes in eligible rural and suburban areas. The biggest advantage is zero down payment, making homeownership more affordable.
These loans are issued by USDA-approved lenders (Guaranteed Loan) or directly by the USDA (Direct Loan), with the USDA reducing the lender's risk by insuring the loan.
| Feature | Details |
|---|---|
| Down Payment | 0% required |
| Credit Score | Typically 620–640+ for Guaranteed; Direct loans may allow lower |
| Debt-to-Income (DTI) Ratio | Up to ~41%, exceptions up to 44% |
| Loan Limits | Based on borrower's ability to repay, not fixed nationally |
| Mortgage Insurance | Required: Upfront Guarantee Fee (1%) + Annual Fee (0.35%) |
| Occupancy Requirement | Must be primary residence |
| Eligible Property Types | Single-family homes in USDA-eligible rural/suburban areas |
| Advantage | Details |
|---|---|
| Zero Down Payment | Buy a home without a large upfront cost |
| Low Interest Rates | Often lower than FHA or conventional |
| Flexible Credit Guidelines | More lenient for buyers with limited credit history |
| No PMI | Instead, a smaller annual USDA fee applies |
| Assumable Loan | Can be transferred to a qualified buyer |
| Longer Loan Terms | Up to 33 years (or 38 years for very low-income borrowers) |
| Disadvantage | Details |
|---|---|
| Location Restrictions | Only available in USDA-eligible rural/suburban areas |
| Income Limits | Household income capped at 115% of Area Median Income (varies by county) |
| Upfront & Annual Fees | Guarantee fees required (though lower than FHA MIP) |
| Primary Residence Only | Not available for investment or vacation properties |
| Stricter Property Standards | Home must meet USDA's "decent, safe, sanitary" rules |
| Not Accepted Everywhere | Some sellers may prefer conventional offers |
| Feature | USDA | FHA | Conventional |
|---|---|---|---|
| Credit Score | 620+ (flexible) | 500–579 (10% down), 580+ (3.5% down) | 620+ |
| Down Payment | 0% | 3.5% (min) | 3%–20% |
| Mortgage Insurance/Fees | 1% upfront + 0.35% annual fee | 1.75% upfront + annual MIP | PMI if <20% down |
| DTI Ratio | ~41% (flexible) | Up to 50% | Typically ≤43% |
| Income Limits | Yes (115% AMI) | No | No |
| Location Limits | USDA-eligible areas only | None | None |
✅ You want 0% down payment
✅ You're buying in a rural or suburban area
✅ Your income is within USDA limits
✅ You have a fair credit score (620+)
✅ You need affordable monthly payments
✅ You don't qualify for conventional financing
