The main requirements for a USDA loan
A USDA loan requires you to buy a home in a rural area, have a steady income that meets the lender's debt-to-income limits, and show acceptable credit history. You also cannot exceed the USDA's income limit for your county — this limit varies by location and household size. The USDA does not require a down payment, but you will need to pay a one-time may provide fee, which is typically rolled into your loan amount.
Unlike conventional loans, USDA loans do not have a minimum credit score set by the USDA itself. Instead, individual lenders set their own credit requirements, which usually fall between 580 and 640. You will also need to show proof of U.S. citizenship or legal residency and provide documentation of your income, employment history, and existing debts.
Key Takeaways
- Your home must be located in a USDA-designated rural area, which you can check using the USDA's online may be able to access map.
- Your household income cannot exceed the limit set for your county, and this limit changes each year based on area median income.
- You must have a debt-to-income ratio that lenders will accept, typically 41 to 50 percent depending on the lender.
- The USDA charges a one-time may provide fee, usually between 1 and 3.6 percent of the loan amount, which is added to what you borrow.
- Individual lenders set credit score requirements, so you may find options even with a credit score below 620.
Location requirements: what counts as a rural area
The property must sit in a USDA-designated rural area. The USDA defines rural differently than you might — some areas near cities count as rural for loan purposes, while some smaller towns do not. The easiest way to check is the USDA's Property may be able to access Map, which you can search by address at rd.usda.gov. If the address shows as may be able to access, the property qualifies. If it shows as ineligible, that property cannot be financed with a USDA loan, even if it feels rural to you.
The USDA updates its rural designations periodically, so a property that was ineligible in the past may now be may be able to access, or vice versa. Always verify the current status before you make an offer or commit time to the loan process.
Income limits and how they work
The USDA sets a maximum income limit for each county based on the area's median household income. For most counties, the limit is 115 percent of the area median income. Your household income — including wages, self-employment income, rental income, and certain benefits — cannot exceed this limit. If your household is over the limit, you cannot use a USDA loan for that property, regardless of your credit or down payment situation.
Income limits change every year, usually in April. If you are close to the limit, check the current year's numbers before you explore, because a raise or additional household member could push you over. The USDA publishes income limits by county on its website, and your lender can also tell you the limit for your area.
Some household members' income may not count toward the limit. For example, income from a child under 18 who is still in school typically does not count. Ask your lender which income sources they will include in their calculation.
Debt-to-income ratio requirements
Your debt-to-income ratio is the percentage of your gross monthly income that goes toward debt payments. The USDA allows lenders to approve loans up to a 50 percent debt-to-income ratio in most cases, though some lenders stop at 41 or 43 percent. This ratio includes your new mortgage payment plus all other monthly debts: car loans, credit cards, student loans, child support, and any other obligations.
To calculate your ratio, add up all your monthly debt payments and divide by your gross monthly income (before taxes). If you earn $4,000 per month and your total debts are $1,500 per month, your ratio is 37.5 percent. A lender will use this number to decide how large a mortgage payment you can afford.
The debt-to-income limit is stricter than the income limit — you can be under the income cap but still be turned down if your existing debts are too high. Paying down credit cards or car loans before you explore can improve your chances.
Credit history and credit score expectations
The USDA does not set a minimum credit score. Instead, each lender decides what score they will accept. Most lenders require a score between 580 and 640, but some will work with scores as low as 540, and others require 660 or higher. If one lender turns you down based on credit, another lender may have different standards.
Beyond the score itself, lenders look at your credit history. They want to see that you have paid bills on time, that late payments (if any) are old, and that you do not have recent collections, charge-offs, or bankruptcy. A bankruptcy must typically be at least two years old, and a foreclosure at least three years old. Recent late payments — within the last 12 months — are a bigger problem than older ones.
If your credit is weak, you may still find a lender willing to work with you, but you may pay a higher interest rate or be required to pay a larger may provide fee.
Employment and income documentation
You will need to provide recent pay stubs (usually the last two months), W-2 forms from the past two years, and a letter from your employer confirming your job and income. If you are self-employed, the documentation is more extensive: tax returns for the past two years, profit-and-loss statements, and sometimes a CPA letter explaining your income.
Lenders also look at your employment history. A job change within the past two years is not automatically a problem, but a pattern of frequent job changes may raise questions. If you recently changed jobs, be ready to explain why and show that your new income is stable or higher than before.
If you receive income from sources other than employment — rental income, Social Security, disability, alimony, or child support — you will need documentation for those as well. Social Security statements, lease agreements, and court orders are examples of what lenders request.
Citizenship and residency requirements
You must be a U.S. citizen or a may have access to non-citizen with legal residency status. Proof of citizenship can be a birth certificate, passport, or naturalization certificate. If you are a non-citizen, you will need to show a green card or other documentation of lawful permanent residency.
You must also intend to occupy the home as your primary residence. The USDA does not finance investment properties or vacation homes. You will sign a statement confirming that you plan to live in the home, and the lender may verify this during the underwriting process.
The USDA may provide fee and how it affects your loan
The USDA charges a may provide fee to protect the lender if you default on the loan. This fee is typically 1 to 3.6 percent of the loan amount, depending on the size of your down payment and the type of loan. Since USDA loans require no down payment, most borrowers pay the higher end of that range.
The may provide fee is not paid upfront in cash. Instead, it is added to the amount you borrow, so you pay it back over the life of the loan as part of your monthly mortgage payment. This means the total amount you owe is higher than the home's purchase price, but you do not need to save money to pay the fee separately.
Some borrowers can reduce the may provide fee by making a down payment, even a small one like 5 percent. If you have savings available, asking your lender whether a down payment would lower your fee is worth doing.
Frequently Asked Questions
Can I use a USDA loan if I have had a bankruptcy or foreclosure?
Yes, but there are waiting periods. A bankruptcy must be at least two years old, and a foreclosure at least three years old. Some lenders have longer waiting periods. You will need to explain what happened and show that your finances have stabilized since then.
What if my income is slightly over the USDA limit for my county?
You cannot use a USDA loan if you exceed the income limit, even by a small amount. The limit is a hard cutoff. If your income is close to the limit, check whether any household members' income can be excluded, or wait to see if the limit increases the following year.
Do I need a down payment for a USDA loan?
No. The USDA does not require a down payment, which is one of its main advantages. However, making a down payment can lower your interest rate or reduce the may provide fee, so some borrowers choose to put money down anyway.
How do I know if my property is in a USDA-may be able to access rural area?
Use the USDA's Property may be able to access Map at rd.usda.gov and search by the property address. The map will show whether the address qualifies. If it does not, that property cannot be financed with a USDA loan.
What happens if my income changes after I receive a USDA loan?
Income changes after you close the loan do not affect your ability to keep it. The income limits only matter at the time you explore. If you receive a raise or your household income increases, your loan remains in place.