WHAT IS A USDA HOME LOAN?
The USDA home loan, also called the USDA Rural Development Guaranteed Housing Loan Program, is a government-backed mortgage guaranteed by the U.S. Department of Agriculture. Originally created to help rural property buyers with limited financing options, it’s now a practical choice for anyone seeking to live outside urban areas and enjoy a quieter, country lifestyle.
USDA Home Loan Requirements
To qualify for a USDA home loan, borrowers must meet specific requirements:
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Eligible geographic areas: The property must be located in a USDA-designated rural area. This isn’t limited to farmland—nearly 97% of the U.S. qualifies, including small towns and some suburban areas. Use the USDA eligibility map to check if your location qualifies.
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Income limits: USDA loans are designed for low- to moderate-income buyers. Eligible income is generally up to 115% of the area’s median income. For lower-income households, the program considers the total household income, including earnings from children or other family members living in the home, even if they aren’t on the loan application.
All USDA home loans share these basic eligibility requirements, though specific loan types may have additional features.
Is a USDA loan the same as a FHA loan?
USDA and FHA (Federal Housing Association) loans are both government-backed mortgages. While a USDA loan is designed for lower-income borrowers seeking to buy a home in a rural or suburban area, an FHA loan is geared toward borrowers who have saved a small down payment and a credit score that doesn’t meet conventional loan guidelines.
USDA Home Loan Eligibility
If affordability is a priority, it helps to understand the key requirements for a USDA home loan.
To be eligible, you generally need to meet the following criteria:
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U.S. citizenship or permanent residency
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Monthly housing payment that does not exceed 29% of your monthly income
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Reliable income, typically for at least 24 months
USDA loans are designed to make homeownership accessible, even for borrowers with limited credit history or minimal down payment savings.
Advantages and disadvantages of a USDA loan
USDA home loans offer several advantages compared to other mortgage options:
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No down payment: USDA loans provide 100% financing, eliminating a major hurdle for first-time homebuyers.
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Lower interest rates: Standard USDA rates are competitive and not tied to your credit score or down payment.
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Low mortgage insurance: As of 2023, the upfront mortgage insurance fee is just 1%, with an annual fee of 0.35%—among the lowest of any mortgage program. The upfront fee can also be rolled into the loan to avoid out-of-pocket costs.
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Flexible credit requirements: Borrowers with lower or imperfect credit can often qualify.30-year fixed rate: USDA loans typically come with a 30-year fixed term, offering predictable and affordable monthly payments.
Approval for a USDA loan depends on geographic location, income limits, and property standards. These guidelines help make USDA loans an accessible and affordable option for many borrowers nationwide.