What a USDA loan is

A USDA loan is a mortgage backed by the U.S. Department of Agriculture that lets you buy a home in a rural area with little or no money down. The USDA does not lend the money itself — a bank or mortgage lender does — but the USDA guarantees the loan, which means it promises to cover the lender's loss if you stop paying. Because the USDA takes on that risk, lenders are willing to offer loans to borrowers who might not may have access to for a conventional mortgage: people with lower credit scores, smaller down payments, or less savings for closing costs.

The program has been around since the 1930s and is run through the USDA Rural Development office. It is one of the few mortgage programs that allows you to borrow with zero down payment, though you will still pay a may provide fee (a one-time insurance cost) and monthly mortgage insurance.

Key Takeaways

  • USDA loans require the property to be in a designated rural area, which includes many towns and suburbs outside major cities, not just farmland.
  • You can borrow with zero down payment, but you will pay an upfront may provide fee and monthly mortgage insurance on top of your regular mortgage payment.
  • Income limits vary by county and family size, so a household that qualifies in one county may not may have access to in another.
  • The property must be a single-family home that you will live in as your primary residence — investment properties and multi-unit buildings do not may have access to.
  • A lender, not the USDA, approves your loan and decides whether to offer it, even though the USDA backs it.

Where you can use a USDA loan

The USDA defines "rural" broadly. It includes small towns, villages, and some suburbs within commuting distance of cities — not just farms or remote areas. The USDA Rural Development office publishes a map showing which areas are may be able to access; you can search by address or zip code on their website to see whether a specific property qualifies.

may be able to access depends on the property's location, not your location. If you live in a city but want to buy a home in a rural-designated area, you can use a USDA loan. If you want to buy in a city or a suburb that the USDA has classified as urban, you cannot, even if you currently live in a rural area.

Some states have more may be able to access rural land than others. In densely populated states like New Jersey or Connecticut, the may be able to access zones are smaller and farther from job centers. In less densely populated states, much of the land outside major cities qualifies.

Income limits and household size

USDA loans have income caps that vary by county and by the number of people in your household. A family of four might may have access to in one county but exceed the limit in a neighboring county with higher average incomes. The USDA publishes income limits for each county on its website, and you can also ask a lender to check whether your household income falls within the limit for the area where you want to buy.

Income includes wages, self-employment earnings, rental income, and some benefits. It does not include one-time payments like tax refunds or inheritance. If you are self-employed, the USDA typically looks at your average income over the past two years.

The income limit is a ceiling, not a target. You do not have to earn a minimum amount to may have access to — you only have to earn less than the maximum for your county and household size.

Down payment and closing costs

The main advantage of a USDA loan is that you can borrow 100 percent of the home's purchase price with zero down payment. You do not need to save thousands of dollars before you can buy. However, you will still have costs at closing.

The USDA charges a may provide fee, which is an upfront insurance premium paid to protect the lender. This fee is typically 2 to 3.5 percent of the loan amount and can be rolled into your mortgage (added to the amount you borrow) rather than paid out of pocket at closing. You will also pay monthly mortgage insurance, which protects the lender if you default. This is added to your monthly payment.

Other closing costs — title insurance, appraisal, inspection, attorney fees — are similar to any mortgage. Some lenders or sellers may cover part of these costs, but you should budget for them or ask whether the seller will contribute.

Credit score and payment history

USDA loans are more flexible than conventional mortgages on credit scores. Most lenders will work with borrowers who have a credit score in the 580 to 620 range, though some require 640 or higher. A conventional mortgage typically requires 620 or above, and many require 680 or higher for the best rates.

Lenders look at your payment history more closely than the score itself. If you have missed payments on credit cards, car loans, or rent in the past two years, many lenders will deny your process or require you to explain the missed payments and show that your finances have stabilized. A single late payment from five years ago is usually not a barrier.

Bankruptcy does not automatically disqualify you. Most lenders require that a Chapter 7 bankruptcy be at least two years old and a Chapter 13 bankruptcy be at least one year old (or that you have made all payments on time since filing). Foreclosure has similar waiting periods.

Property requirements and home inspection

The home must be a single-family dwelling that you will occupy as your primary residence. Condos, townhouses, multi-unit buildings, and investment properties do not may have access to. The home must be in decent condition — the USDA requires an appraisal and inspection to confirm the property meets minimum standards for safety and livability.

The inspection is stricter than a conventional appraisal. The home must have working plumbing, electricity, and heating. The roof, foundation, and structure must be sound. Major repairs cannot be deferred. If the inspection finds problems, the seller must fix them before closing, or the deal falls through.

The home's value must support the loan amount. The USDA will not lend more than the appraised value, so if you negotiate a price above what the home appraises for, you will need to cover the difference out of pocket or renegotiate the price with the seller.

How to start the process

You do not explore directly to the USDA. Instead, you work with a bank, credit union, or mortgage lender that offers USDA loans. Not all lenders do, so you may need to call several to find one in your area.

Start by getting pre-approval from a lender. Pre-approval means the lender has reviewed your income, credit, and debts and is willing to lend you up to a certain amount. This takes a few days and requires you to provide pay stubs, tax returns, bank statements, and a list of your debts. Pre-approval is free and does not commit you to borrowing.

Once you are pre-approved, you can search for homes in may be able to access rural areas. When you find a property and make an offer, the lender will order an appraisal and inspection. If both come back acceptable and your financial situation has not changed, the lender will issue a commitment letter — a promise to fund the loan. You will then move to closing, where you sign the final paperwork and receive the keys.

Frequently Asked Questions

Can I use a USDA loan to buy a mobile home?

Yes, if the mobile home is on land you own and meets USDA standards for construction and condition. A mobile home in a mobile home park where you rent the lot does not may have access to. The USDA treats a mobile home on owned land the same as a single-family house.

What happens if I move after I buy with a USDA loan?

You must live in the home as your primary residence when you close. If you move within a year or two, some lenders may require you to refinance into a conventional loan. After a few years, most lenders will not enforce this, but check your loan documents or ask your lender about their policy.

Can I get a USDA loan if I am self-employed?

Yes. Lenders will review your tax returns for the past two years and may ask for profit-and-loss statements or bank statements to verify your income. Self-employment income is treated the same as W-2 wages for qualification purposes.

Do I have to pay back the may provide fee if I sell the home early?

No. The may provide fee is a one-time cost paid at closing. If you sell or refinance, you do not get it back, but you do not owe any additional amount. When you refinance into a different loan, you may pay a new may provide fee if you stay in a USDA loan.

What if the home appraises for less than the purchase price?

The USDA will not lend more than the appraised value. If the appraisal comes in low, you have three options: renegotiate the price down with the seller, cover the difference out of pocket, or walk away from the deal. Most buyers renegotiate or walk away.