Most first-time buyers assume they need a down payment to buy a home. USDA loans break that rule. If you are buying in an eligible rural or suburban area and your income falls within the program’s limits, you can finance 100% of the purchase price — no down payment required.
Not every lender offers USDA loans or specializes in them. LendingTree can match you with lenders who work with USDA programs so you can compare options before you apply.
What Is a USDA Loan?
A USDA loan is a government-backed mortgage guaranteed by the U.S. Department of Agriculture. The USDA created the program to encourage homeownership in rural and less-densely populated areas. The main benefit is zero down payment — one of the only mortgage programs in the U.S. that still allows this.
There are two main types of USDA loans for home buyers:
- USDA Guaranteed Loan: Issued by approved private lenders and backed by the USDA. This is the most common type for first-time buyers with regular employment income. You apply through a bank, credit union, or mortgage lender.
- USDA Direct Loan: Issued directly by the USDA for very-low to low-income borrowers. Income limits are lower, but interest rates are subsidized and can be very attractive. You apply directly through the USDA.
This guide focuses primarily on the Guaranteed Loan program, which is available through mainstream lenders.
USDA Loan Requirements
Location
The property must be in a USDA-eligible rural or suburban area. “Rural” is broader than many people expect — USDA maps often include smaller cities, towns on the outskirts of major metro areas, and suburban communities. You can check any address at the USDA’s eligibility map (eligibility.sc.egov.usda.gov).
As a general rule, areas with populations under 35,000 often qualify, though the USDA updates its maps periodically. Areas that were eligible during prior census cycles may lose eligibility as populations grow — check the current map before assuming a property qualifies.
Income Limits
USDA income limits are based on household size and county. For the Guaranteed Loan program, your household income generally cannot exceed 115% of the area median income (AMI). For a family of four in many parts of the country, that is $110,000 to $130,000 per year. In higher-cost areas, the limit is higher.
The USDA counts all household members’ income, not just the borrowers on the loan. Make sure to check the USDA income eligibility tool with your full household income, not just the borrowers’.
Credit Score
The USDA does not set an official minimum credit score, but most approved lenders require at least a 640 FICO score for streamlined processing. Borrowers with scores below 640 may still qualify but face more manual underwriting and documentation requirements. See our article on first-time buyer credit score requirements if you need to build your score before applying.
Debt-to-Income Ratio
Lenders typically look for a front-end DTI (housing costs only) below 29% and a back-end DTI (all monthly debt payments) below 41%. Some lenders will approve higher ratios with strong compensating factors like significant savings or a high credit score.
Primary Residence
USDA loans are for primary residences only. You cannot use a USDA loan for a vacation home, investment property, or rental.
USDA Loan Costs
USDA loans do not require a down payment, but they do have two mortgage insurance fees:
- Upfront guarantee fee: 1% of the loan amount, charged at closing. This can be rolled into the loan rather than paid out of pocket.
- Annual fee: 0.35% of the remaining loan balance, divided into monthly payments. This is similar to PMI on a conventional loan but is generally lower than FHA mortgage insurance.
On a $250,000 loan, the upfront fee is $2,500 (which can be financed) and the annual fee starts at about $875 per year, or roughly $73 per month.
Compared to FHA loans, USDA mortgage insurance is usually less expensive over time. Compared to conventional loans with less than 20% down, USDA can also be competitive — especially since you do not need any down payment at all.
USDA vs. Other Zero-Down or Low-Down Loan Options
| Lender | Loan Type | Min Down Payment | Mortgage Insurance | Best For |
|---|---|---|---|---|
| LendingTree | USDA, VA, FHA, conventional | 0% (USDA/VA) | Varies by loan type | Comparing all options at once |
| Rocket Mortgage | USDA Guaranteed, FHA, VA, conventional | 0% (USDA/VA) | Varies by loan type | Fast online pre-approval |
| Better.com | Conventional, FHA (limited USDA availability) | 3% | Required below 20% down | No origination fee conventional loans |
| New American Funding | USDA, FHA, VA, conventional | 0% (USDA/VA) | Varies by loan type | First-generation buyers, diverse borrowers |
How to Apply for a USDA Loan
- Check area eligibility: Look up the property address at the USDA eligibility map before spending time on the application.
- Check income eligibility: Use the USDA income tool with your full household income and county.
- Find an approved lender: Not all lenders offer USDA loans. Search for USDA-approved lenders in your area. LendingTree can filter by USDA loan availability.
- Get pre-approved: Gather your income documentation, tax returns, and bank statements. The pre-approval process for USDA is similar to other mortgages. Our guide on getting pre-approved for a mortgage covers exactly what to prepare.
- Find a qualifying property: The home must meet USDA property standards — generally it must be a modest, single-family home in move-in condition. The appraiser will flag any health or safety issues that need repair before approval.
- Close the loan: USDA loans typically take 30 to 60 days to close because the file goes through the lender and then the USDA for a final review. Factor this into your timeline.
USDA Loan Pros and Cons
Pros:
- Zero down payment — no cash needed for the purchase itself
- Competitive interest rates because of the government guarantee
- Lower mortgage insurance costs than FHA loans
- Available to repeat buyers, not just first-timers (though income and location limits still apply)
Cons:
- Location restriction — property must be in an eligible rural or suburban area
- Income limits — cannot exceed 115% of AMI
- Primary residence only — no investment or vacation properties
- Longer closing timelines than conventional loans
- Property must meet USDA condition standards
Is a USDA Loan Right for You?
USDA loans are worth a serious look if you are open to living outside a major city and your household income falls within the limits. The zero down payment requirement is a genuine advantage — it lets you preserve your savings for moving expenses, repairs, and an emergency fund rather than tying everything up in a down payment.
Compare a USDA loan against FHA and conventional options with your actual numbers before deciding. Our article on first-time buyer loan comparison breaks down how each program stacks up on rate, insurance costs, and qualification standards.
Ready to see what you qualify for? Check lender options on LendingTree and find USDA-approved lenders in your area. If New American Funding serves your area, they have dedicated loan officers experienced with USDA and rural buyers.