Open fields

What Is a USDA Loan?

The Short Version

  • If you want to build, buy or renovate a home in rural America, a USDA home loan is a great option that requires 0% down
  • To qualify for a USDA home, you need to meet home location, income and credit score eligibility requirements
  • A surprising range of homes are eligible for a USDA loan as long as the home is your primary residence

Contents

See what mortgage you qualify for

NMLS #3030

*See what you qualify for

We teamed up with Rocket Mortgage to help you get house-hunting sooner! Answer a few questions to get your commitment-free, personalized rate 💸

Get Started by selecting an option below

What kind of loan are you interested in?

What to expect

Tell us what you need and a representative from Rocket Mortgage will give you a call. You’ll have support at every step.

What kind of property do you want to purchase? What kind of property do you own?

Why we’re asking

Rocket Mortgage® can provide a more accurate rate estimate if they know what kind of property you’re interested in.

NMLS #3030
How do you use your property? How would you use this property?

Why we’re asking

Having a little more information upfront helps Rocket Mortgage® provide a personalized rate faster.

NMLS #3030
When are you planning to buy?

Still House Hunting?

Hope you find your dream home soon! In the meantime, it’s never too early to know your rate.

NMLS #3030
Are you a first-time home buyer?

It’s all good:

Whether it’s your first – or second property – Rocket Mortgage® can provide you with a rate estimate.

NMLS #3030
Do you have a second mortgage?

It’s all good

If you have a second mortgage, it’s no problem. Letting us know helps to customize your rate.

NMLS #3030
What is your credit score?

Don’t know your score?

Don’t sweat it! Make your best guess. Credit scores range from 300 (low) to 850 (excellent).

NMLS #3030

Tell us a bit more about you

What happens next?

A representative from Rocket Mortgage® will be in touch to discuss your commitment-free, personalized rate. Then you can decide whether you’d like to lock it in!

NMLS #3030

Enter your contact info so we can get in touch

By submitting your contact information you agree to our Terms of Use and our Security and Privacy Policy. You also expressly consent to having Rocket Mortgage, our Family of Companies, and potentially our mortgage partners contact you about your inquiry by text message or phone (including automatic telephone dialing system or an artificial or prerecorded voice) to the residential or cellular telephone number you have provided, even if that telephone number is on a corporate, state, or national Do Not Call Registry. You do not have to agree to receive such calls or messages as a condition of getting any services from Rocket Mortgage or its affiliates. By communicating with us by phone, you consent to calls being recorded and monitored.

NMLS #3030
Your information has been sent!

A home loan expert from Rocket Mortgage® will reach out to you soon with your personalized rate.

Your information has been sent!

A refinance expert from Rocket Mortgage® will reach out to you soon with your personalized rate.

Feeling cooped up in your metro area? You’re not alone. 

According to recent Census data, 86% of U.S. residents live in metro areas. That leaves 14% of the population spread out in the rural areas of the country – which spans 72% of the nation’s land area.[1]

So, if you’re looking for more space, there is plenty of it for home buyers who want to move to America’s rural areas.

Now, rural doesn’t mean that you have to live on a farm or be the only home for miles around. 

If it ain’t urban, it’s rural. Even an area with up to 50,000 people is considered rural as long as it’s not part of a larger metropolitan area.[2]

So, if the idea of small towns and open spaces appeals to you, the U.S. Department of Agriculture (USDA) has likely got a loan for that. 

The USDA does a lot more than grade America’s beef and oversee the quality of its produce. The agency is also in charge of maintaining the vitality of rural communities. 

To do that, the USDA offers USDA home loans and loan programs that help you buy, build, repair or renovate a home in one of America’s many rural communities.

So, if you want to make a move and bid farewell to the city and the ‘burbs, a USDA home loan might help you do just that.

How Does a USDA Loan Work?

USDA loans (like Department of Veterans Affairs (VA) loans and Federal Housing Administration (FHA) loans) are mortgage loans that are backed by the U.S. government. While they work like any other kind of mortgage loan, USDA loans have unique benefits and eligibility requirements.

How Do I Apply for a USDA Loan?

Just like an FHA or VA loan, most borrowers can get a USDA-guaranteed loan through banks, credit unions or other mortgage lenders. Like any mortgage, you work with a loan officer, you go through underwriting and closing, and then you make monthly mortgage payments to the lender.

The USDA doesn’t directly lend you the money. Instead, it guarantees the loan up to 90%, making it easier for lenders to offer more families home loans.

The USDA makes it easy to comparison shop for lenders, providing a list of approved lenders that range from local banks and credit unions to national banks and online lenders.

And you can do more than buy a house. There are USDA loans that allow you to build your own home or refinance your current mortgage.

What Are the Benefits of a USDA Loan?

USDA loans offer lots of the same benefits as other government-backed loans, but with less baggage. 

To start, USDA loans have no down payment requirement. 

In comparison to FHA loans, USDA loans offer lower interest rates and lower fees. And you can borrow extra money for home upgrades. Like FHA loans, you can get down payment assistance from a wider variety of sources than you could for conventional loans.

Let’s look at these USDA loan benefits in detail.

No down payment required

For many home buyers, especially first-time home buyers, saving enough for a down payment can be a major obstacle to homeownership.

With a USDA loan, the down payment isn’t a problem because down payments aren’t required. You’re still responsible for closing costs, but you can have the costs folded into your mortgage loan.

Low interest rates

USDA loans usually offer some of the lowest interest rates available and are competitive with conventional loan interest rates.

Borrowing more than the purchase price

Another USDA loan benefit is that you can borrow up to 100% of the home’s appraised value. That means you can borrow more than the money you need to buy or build a home. You can also borrow money to cover related expenses, including:

  • Closing costs: This includes lender fees and other expenses related to closing on the property.
  • Connection fees: This involves getting the home hooked up to utilities, including water, sewage, electrical and even broadband.
  • Setting up an escrow account: You can put money down to cover real estate taxes, hazard and flood insurance premiums.
  • Accessible equipment and furniture: You can use the money to install features, like ramps and guardrails, that are part of the house.
  • Essential household equipment: An item is essential if you can’t take it with you when you move. This includes wall-to-wall carpeting, large kitchen appliances, washers, dryers and heating and cooling equipment.
  • Energy efficiency measures: This includes the installation of double-paned windows, insulation and solar panels.
  • Site preparation: This includes improvements that permanently enhance the value of the home, like grading, foundation plantings, seeding or sod installation, trees, walkways, fences and driveways.

Take advantage of gift funds

Like FHA loans, USDA loans let you take advantage of gift money for down payments and down payment assistance programs from a wide range of sources, including:

  • Family members (including extended family, domestic partners and fiances)
  • Employers or labor unions
  • Charitable organizations
  • Homeownership assistance grants and programs

Are There Limitations on a USDA Loan?

USDA loans have lots of benefits … and requirements. 

Credit score

For most lenders, a credit score of 640 or higher is preferred. Lenders can offer loans to borrowers with lower credit scores or limited credit history at their discretion.

Debt-to-income (DTI) ratio 

Your DTI takes all of your monthly debts (think: minimum monthly credit card payments, rent or mortgage, student loans, auto loans and personal loans) and divides them by your monthly gross income.

To qualify for a USDA loan, you need a DTI of 41% or less. This is a little less forgiving than an FHA loan, which can allow for a DTI of 57%.

Income limit

The program is designed to help low- and moderate-income home buyers. You’ll have to check and see if you meet the USDA’s income-eligibility requirement. The income requirements vary because they are based on area. Your income can’t exceed 115% of the median household income (MHI) in the area where you want to live.

What Type of Property Is Eligible for a USDA Loan?

The home you plan on buying or building needs to be in an eligible rural area. You can check the USDA website to see if the property qualifies.

The home must be your primary residence and a single-family home. BTW, single-family homes come in all structures and styles, everything from McMansions to cabins to townhouses. The home can also be part of a planned unit development (PUD) or a condo complex. What it can’t be is a vacation home or investment property. 

There is no maximum purchase price or acreage limit. You can buy it as long as:

  • You can afford the property.
  • The property is similar in price and square footage in comparison to other homes in the area. 
  • It meets the Department of Housing and Urban Development’s (HUD) standards for health and safety.

Also, there is no flipping allowed with a USDA loan. You shouldn’t expect to add “USDA Prime Flippers” to your binge-watch list any time soon.

Country Roads, Take Me Home

If you’re thinking about a fresh start and a new home “where the deer and the antelope play” – or at least used to play – a USDA loan can be a great option. You get competitive interest rates. You can skip the down payment. And if you need it, you can borrow the extra money you’ll need to get your home up and running.

Take the first step toward buying a home.

Get approved. See what you qualify for. Start house hunting.

  1. USDA Economic Research Service. “Nonmetro population change has remained near zero in recent years.” Retrieved September 2021 from https://www.ers.usda.gov/data-products/chart-gallery/gallery/chart-detail/?chartId=99693

  2. U.S. Census Bureau. “Defining Rural at the U.S. Census Bureau.” Retrieved September 2021 from https://www.census.gov/content/dam/Census/library/publications/2016/acs/acsgeo-1.pdf

You Should Also Check Out…