USDA Loan Eligibility
More and more of us are moving outside major metro areas, making it a good reason to understand USDA loan requirements and eligibility. The increased use of remote work since 2019 and generally lower housing prices are making rural areas increasingly desirable, places where the best available mortgage options often involve the US Department of Agriculture (USDA).
The USDA program offers several types of mortgages, each designed to serve a different part of the rural community. Established in 1949, USDA loans are intended to support affordable housing development in rural areas.
In basic terms, USDA mortgage options include the USDA Direct or Guaranteed Loan.
The Single Family Housing Guaranteed Loan Program allows borrowers to purchase homes with nothing down and liberal credit requirements. The money comes from private lenders, and the federal government guarantees repayment.
The Single Family Housing Direct Home Loans Program is designed to help low and very-low-income households buy or improve homes in rural areas. The Direct program can also provide payment assistance in some cases.
The USDA offers more than one mortgage program. Here’s a side-by-side comparison to help explain the differences between them.
| USDA Guaranteed Loan Program | USDA Direct Home Loan Program | |
| Loan Provider | Private lenders (USDA guarantees repayment) | USDA directly |
| Income Target | Low- and moderate-income households | Low- and very-low-income households |
| Income Limit | Generally up to 115% of area median income | Designed for very-low-income borrowers |
| Down Payment | None (0% down) | None (0% down) |
| Interest Rates | Competitive rates | May include payment assistance |
| Loan Terms | 30-year fixed | 33-year fixed* |
| Guarantee Fees | 1% upfront + 0.35% annual | None |
| Best For | Buyers using private lenders | Buyers needing direct government assistance |
*May go up to 38 years for very-low-income borrowers who qualify
USDA mortgages are specifically designed for rural area residents and can include significant benefits.
The USDA program is open to a wide variety of borrowers, but there are limitations.
The USDA loan program does not require a minimum credit score. Instead, private lenders determine the credit scores they will accept. Borrowers may be able to get financing that might be denied with other loan programs because of more liberal credit standards.
Rural areas make up approximately 74% of the U.S. land area, encompassing vast regions beyond major metropolitan hubs. With the expansion of metro areas and the increasing accessibility of high-speed internet, many locations once considered remote are now closely connected to urban centers, offering greater opportunities for work, commerce, and community growth.
The government has many ways to define which areas are “rural” and which are not. The Congressional Research Service has 22 pages of definitions, fortunately, it’s much easier to look up an address with our specialized USDA property eligibility map.
The program is designed to finance primary residences. Investment properties are not allowed, and using a property to produce income is generally prohibited.
Zoning rules across the country are currently in flux. Long-standing single-family zoning regulations are being replaced by updated guidelines that permit more than one unit on traditional lots. Property owners are adding accessory dwelling units (ADUs). ADUs can be financed under USDA rules, but not in all cases.
ADUs that serve as additional living space for household members, such as in multigenerational homes, align with this program’s goals. However, ADUs intended to generate rental income are not eligible.
If you move, however, and decide not to sell the property, you may be able to rent the home out. Learn more about USDA loan occupancy guidelines here.
Lenders want evidence that borrowers can repay the mortgage financing. They will ask for evidence, such as W-2 forms, pay stubs, and tax returns, to document the borrower’s ability to repay the debt. With your permission, lenders can get certain documentation directly from the IRS and banks. By receiving information electronically, borrowers have less to provide on paper, and the application process can move more quickly.
Lenders want to know how much you earn each year to qualify for mortgage financing, and they also want to know how much of your money goes to monthly debts. This is done in two ways.
First, under the USDA loan guarantee program, up to 29% of your gross monthly income can be used for costs such as mortgage interest, principal, property taxes, and property insurance (PITI).
Second, as much as 41% of your gross monthly income can be used for housing costs PLUS student loans, credit card payments, auto payments, etc.
In other words, if you have a gross household income of $8,000 per month, then $2,320 (29%) can go to housing costs, and $3,280 (41%) can be used for all regular debts.
These percentages may be flexible for those with strong credit, solid cash reserves, and other compensating factors. Learn more about USDA credit requirements here.
The USDA mortgage programs are designed to help low- and moderate-income borrowers and often work well for first-time purchasers. The income limits, at this writing, are generally $119,850 for a household with one to four individuals and $158,250 for a household with five to eight individuals. The limits are tailored to local areas and, in some cases, can be higher. Learn more about income requirements for USDA loans here.
Loan amounts are determined by an applicant’s repayment ability, rather than a fixed maximum purchase price. Additionally, there is no strict acreage limit, provided the land size is typical for the area and aligns with local housing standards.
While USDA loans require nothing down, there can be significant closing costs for things like transfer taxes, title insurance, and escrow funds. An escrow fund, or trust account, is the money a lender collects each month to pay costs such as property taxes and property insurance. Money is needed at closing to start the account.
Lenders make USDA-guaranteed loans available to borrowers with nothing down because if something goes wrong and the loan is not repaid, the federal government will pay off the lender. The guarantee fee comes in two forms.
Firstly, there is a 1% upfront fee. If you borrow $250,000, the fee is $2,500. To save cash, this amount can be added to the loan.
Secondly, there is a 0.35% annual fee paid monthly. For example, if a borrower has a $250,000 loan amount and rolled the $2,500 upfront guarantee fee into the loan, the amount financed would be $252,500. Multiply this sum by 0.35%, which would total $883.75. Divide that by 12, and the monthly annual fee cost would be $73.65. Learn more about USDA guaranteed mortgage costs with our calculator.
If you’re considering a USDA mortgage, there are some basic steps to determine eligibility and move forward in your loan process:
Yes, individuals with disabilities can qualify for USDA home loans, provided they meet standard eligibility criteria such as income limits, creditworthiness, and property location requirements—not physical ability or employment status. Disability income, including Social Security Disability Insurance (SSDI) or Supplemental Security Income (SSI), can be considered as qualifying income.
The USDA loan approval process typically takes 30 to 60 days from application to closing. The timeline can vary based on factors like how quickly you provide documentation, your lender’s internal processes, and how long the USDA takes to issue final approval (known as a conditional commitment).
USDA loan income limits vary by location and household size. Generally, for the Guaranteed Loan Program, the household income must not exceed 115% of the median income of the area.
Yes, the USDA offers the Section 504 Home Repair program, which provides loans and grants to eligible homeowners to repair, improve, or modernize their homes.
No, USDA loans are available to both first-time and repeat homebuyers, provided they meet the program's eligibility requirements.
Yes, the USDA offers refinance options for existing USDA loans, allowing borrowers to take advantage of lower interest rates or change loan terms.
