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What Is a USDA Loan?
A USDA loan is a government-backed mortgage from the U.S. Department of Agriculture. It was created to help moderate and low-income borrowers buy homes in rural and certain suburban areas. The biggest benefit is zero down payment. You can buy a home with no money down as long as you meet the income and location requirements.
USDA loans are not just for farmers. Many suburban neighborhoods and small towns qualify. If you are buying outside a major city, there is a good chance a USDA loan could work for you.
USDA Loan Types
There are two main types of USDA home loans:
USDA Guaranteed Loan (Section 502 Guaranteed): The most common type. Made by private lenders and backed by the USDA. For moderate-income households. This is what most buyers use.
USDA Direct Loan (Section 502 Direct): Funded directly by the USDA for very low and low-income households. These come with payment assistance to lower the monthly cost. You apply directly through the USDA, not a private lender.
This guide focuses on the Guaranteed Loan, which is the more common program.
USDA Loan Requirements
Location Eligibility
The property must be in an eligible rural or suburban area. This does not mean farmland only. Many small towns, rural communities, and suburban areas just outside major cities qualify.
To check if a specific address qualifies, use the USDA’s eligibility map at eligibility.sc.egov.usda.gov. You can enter any address to see if it falls within an eligible area.
Income Limits
USDA loans are for households that meet moderate income guidelines. The limit is 115% of the area median income (AMI) for your county.
| Household Size | Typical Income Limit (Many Areas) |
|---|---|
| 1 to 4 people | $103,500 to $115,000 |
| 5 to 8 people | $136,600 to $152,000 |
These numbers vary by county. High-cost areas may have higher limits. Check the USDA eligibility site for the exact limit in your area.
Important: USDA counts the income of all household members over 18, not just the borrowers on the loan. If an adult child lives with you but is not on the loan, their income still counts toward the household total.
Credit Score
The USDA does not set a formal minimum credit score. Most lenders require at least 640 for streamlined processing. If your score is below 640, you may still qualify through manual underwriting, but the process takes longer and requires more documentation.
Debt-to-Income Ratio
USDA has two DTI guidelines:
- Front-end DTI: Housing payment should be no more than 29% of gross monthly income
- Back-end DTI: Total monthly debts should be no more than 41% of gross monthly income
Lenders can approve higher DTIs if you have strong compensating factors like a high credit score, significant savings, or low housing payment history.
Property Requirements
The home must be your primary residence. USDA loans cannot be used for investment properties or second homes.
The property must meet USDA minimum property standards, which include:
- Functioning heating, plumbing, and electrical systems
- Structurally sound foundation and roof
- No major safety hazards
- A modest size for the area (no luxury features)
USDA Loan Fees
USDA loans have two fees that function like mortgage insurance:
Upfront guarantee fee: 1% of the loan amount. Paid at closing or rolled into the loan.
Annual fee: 0.35% of the remaining loan balance, paid monthly as part of your mortgage payment.
| Loan Amount | Upfront Fee (1%) | Annual Fee (0.35%) |
|---|---|---|
| $200,000 | $2,000 | $700/year ($58/month) |
| $300,000 | $3,000 | $1,050/year ($88/month) |
| $400,000 | $4,000 | $1,400/year ($117/month) |
Compared to FHA loans (1.75% upfront + 0.55% to 1.05% annually), USDA fees are significantly cheaper.
USDA vs. FHA Loan: Which Is Better?
| Feature | USDA Loan | FHA Loan |
|---|---|---|
| Down payment | 0% | 3.5% |
| Min. credit score | 640 (lender-set) | 580 |
| Upfront fee | 1% | 1.75% |
| Annual fee | 0.35% | 0.55% to 1.05% |
| Location restriction | Rural/suburban only | No restriction |
| Income limit | Yes (115% of AMI) | No |
If you qualify for both, USDA is usually the better deal. Zero down and lower fees mean a lower monthly payment and less money out of pocket. For a full look at FHA requirements, see our guide to FHA Loan Requirements 2026.
USDA vs. Conventional Loan
Conventional loans require at least 3% down and private mortgage insurance if you put down less than 20%. USDA loans require zero down and have cheaper annual fees than most PMI.
Conventional loans have no location or income restrictions. If you earn too much or want to buy in a city, a conventional loan is your path. If you qualify for USDA, the savings on down payment and fees can be substantial.
How to Apply for a USDA Loan
Step 1: Check the USDA eligibility map to confirm your target home qualifies.
Step 2: Calculate your household income and check it against the income limit for your county.
Step 3: Get prequalified with a USDA-approved lender. Most banks and mortgage lenders are USDA-approved.
Step 4: Find a home in an eligible area and make an offer.
Step 5: The lender processes your loan and submits it to the USDA for final approval.
Step 6: Close on the home.
The USDA underwriting step adds time compared to conventional loans. Budget 30 to 60 days for closing rather than the typical 30 days.
For a broader look at homebuyer loan programs, see our guide to the best first-time homebuyer loan programs of 2026. If you are thinking about how much to put down, our guide on how much down payment you need to buy a house breaks down all your options.
Frequently Asked Questions
What are the income limits for a USDA loan?
USDA income limits depend on your location and household size. In most areas, the limit is 115% of the area median income. For a family of four in many parts of the country, this is roughly $100,000 to $115,000 per year. Check the USDA eligibility site for your specific county.
What areas qualify for a USDA loan?
USDA loans are available in rural and some suburban areas. You do not need to buy a farm. Many small towns and areas on the outskirts of major cities qualify. Use the USDA eligibility map to check a specific address.
What credit score do you need for a USDA loan?
The USDA does not set a minimum credit score, but most lenders require at least 640 for streamlined processing. Scores below 640 may still qualify with manual underwriting.
Do USDA loans require mortgage insurance?
Yes, but it is cheaper than FHA mortgage insurance. USDA loans charge a 1% upfront guarantee fee and a 0.35% annual fee. Compare that to FHA, which charges 1.75% upfront and 0.55% to 1.05% annually.
Can I use a USDA loan to buy a fixer-upper?
Yes, with a USDA Section 504 loan for repairs. However, the standard USDA purchase loan requires the home to be in good condition and meet minimum property standards.
Rates as of May 2026.