USDA home loans are zero-down-payment mortgages backed by the U.S. Department of Agriculture, sometimes called rural development loans. Established in 1949 under the Housing Act—initially only providing direct loans—the USDA designed these loans to support homebuyers in rural areas. Today, eligible buyers in qualifying towns and regions can apply for direct and guaranteed loans through USDA Rural Development.
These loans are an excellent financing option for low-income borrowers, first-time homebuyers, and other qualified applicants. This guide offers a comprehensive overview of USDA loan programs, including their benefits, types, requirements, and availability, to help you determine if a USDA loan is the right borrowing option for you.
What Is a USDA Home Loan?
USDA mortgages are home loans directly issued or guaranteed by USDA Rural Development in eligible rural areas. Today, guaranteed USDA loans issued by private lenders are more prevalent.
These loans are particularly appealing because they have no down payment requirement and often feature lower interest rates than conventional mortgages. The federal government’s backing minimizes the lender’s risk, making it easier for the borrower to secure favorable loan terms.
Types of USDA Home Loans
USDA loans are available through three primary loan programs: loan guarantees, direct loans, and home improvement grants. Each program serves different borrower needs.
USDA Loan Guarantees
The USDA partners with private lenders to offer guaranteed loans to eligible borrowers. These loans require no down payment, typically feature competitive interest rates, and have 30-year, fixed-rate terms.
Unlike conventional loans, borrowers do not need private mortgage insurance (PMI). However, USDA-guaranteed loans do have fees:
- Upfront fee: 1% of the loan amount
- Annual fee: 0.35% of the remaining loan balance, split into monthly payments
USDA Direct Loans
USDA direct home loans are issued directly by the USDA to applicants with low to very low incomes who lack access to safe and sanitary housing. Loan limits and income thresholds vary by location.
In higher-cost areas, such as parts of California, loan limits can reach over $900,000, while in most rural regions, loan limits are typically under $400,000. The USDA offers direct loans with term options of 33 or 38 years.
USDA Home Improvement Grants and Loans
The USDA Home Repair program provides funding for home repairs and upgrades:
- Home improvement loans: Up to $40,000 with a 20-year term and a 1% interest rate
- Home improvement grants: Up to $10,000 for eligible homeowners
- In some cases, a combined loan and grant package allows borrowers to access up to $50,000 in total funding for home improvements.
How to Qualify For a USDA Home Loan
To qualify for a USDA home loan, you must meet the requirements set by the United States Department of Agriculture. The requirements vary depending on the type of USDA home loan you are applying for.
Qualification Requirements For a USDA-Guaranteed Mortgage
- Residency: Must be a U.S. citizen or permanent resident and purchase in a USDA-eligible location.
- Dependable income: Must demonstrate a history of reliable income.
- Credit score and history: A credit score of at least 640 is needed for streamlined processing; otherwise, manual underwriting is required.
- Mortgage payments: Total monthly payments cannot exceed 29% of your monthly income.
- Primary residence: The loan is only for your primary residence.
Qualification Requirements For a Single Family Housing Direct Home Loan
- Residency: Must be a U.S. citizen or permanent resident and purchase in a USDA-eligible location.
- Credit score and history: A credit score of at least 640 is needed for streamlined processing; otherwise, additional documentation is required.
- Housing need: Must currently lack safe or sanitary housing.
- Mortgage need: Must demonstrate an inability to obtain other mortgage types.
- Primary residence: The USDA direct loan is only for a primary residence.
Qualification Requirements For a USDA Single Family Housing Repair Loan
- Ownership: Must be the primary owner and occupant of the home.
- Credit need: Must show that affordable credit is unavailable elsewhere.
- Income: Household income must not exceed the very low income limit for your county.
- Age: For grants, applicants must be 62 years or older.
Benefits of Guaranteed USDA Loans and Direct USDA Loans
Benefits of Guaranteed USDA Loans
- No down payment: Finance up to 100% of the home’s purchase price.
- Flexible property options: Purchase various property types in eligible rural areas.
- No upfront closing costs: Closing costs and fees can be included in the loan amount.
- Renovation expenses: Bundle repair or update costs into the loan.
- Lenient credit criteria: A high credit score isn’t strictly required.
Benefits of Direct USDA Loans
- No down payment: Finance up to 100% of the home’s purchase price.
- Funding for repairs and improvements: Use funds for construction, renovations, repairs, or relocations.
- Competitive interest rates: Rates are typically comparable to standard market rates.
- Extended repayment terms: Longer repayment periods make homeownership more affordable.
- Accommodating credit requirements: Qualification is possible even with less-than-ideal credit.
How to Apply For a USDA Guaranteed Home Loan Step-By-Step
- Ensure you meet all eligibility requirements.
- Find one or more USDA partner lenders.
- Compare rates between lenders.
- Get prequalified with an approved lender.
- Confirm your home meets eligibility requirements.
- Sign a purchasing agreement.
- Obtain underwriting approval.
- Receive final loan approval.
- Sign on your new home.
How to Apply For a USDA Direct Loan Step-By-Step
- Check you meet all eligibility requirements.
- Fill out the USDA direct loan application at a rural development office.
- Review your loan terms.
- Receive final loan approval.
- Sign on your new home.
Moving Forward in Your Homebuying Journey
USDA home loans provide an incredible opportunity for eligible borrowers to achieve homeownership by offering loans with no down payment requirements and lower interest rates.
However, they may not be the right option for everyone and you should research other loan types to ensure you find the best home loan type for your circumstances. If you’re still searching for home options in your area, use our Find Your Home feature to locate Century Communities properties near you.
USDA Home Loan Program FAQ
Are USDA loans hard to qualify for?
USDA loans have no minimum down payment or credit score requirements, making it easier for low-income borrowers to qualify. Check income limits on the USDA website to determine your eligibility.
What disqualifies you from a USDA home loan?
USDA direct and guaranteed loans are designed for low-income borrowers who cannot obtain other affordable financing options. Disqualification may occur if household income is too high or if other financing is available.
What is the income limit for a USDA loan?
Income limits vary by region and county. Check your eligibility on the USDA website.