What is a USDA loan?

A USDA Single Family Housing Guaranteed Loan is a mortgage backed by the USDA Rural Development program. Like the VA loan, the USDA doesn't lend money directly — it guarantees a portion of the loan made by an approved private lender. The core appeal: no down payment required. The major constraint: both the property and the borrower's income must qualify.

Property eligibility: where can you buy?

The property must be in a USDA-eligible rural or suburban area. 'Rural' is more broadly defined than most people expect — many small towns and suburban communities on the fringes of larger metro areas qualify. The USDA maintains an online eligibility map where you can check an address. The home must be your primary residence; investment properties and vacation homes do not qualify.

Income limits

USDA loans are designed for low-to-moderate income households. Household income — including all occupants, even non-borrowers — generally cannot exceed 115% of the area median income (AMI) for the county. Income limits vary by location and household size and are updated annually by the USDA.

Fees: upfront and annual guarantee

• Upfront guarantee fee: A percentage of the loan amount, paid at closing (can be rolled into the loan).
• Annual fee: A small percentage of the remaining loan balance, divided into monthly installments — similar in concept to PMI but typically at a lower rate than FHA MIP.
• These fees offset the cost of the USDA guarantee and are generally lower than FHA mortgage insurance for comparable loans.
• Check current fee percentages on the USDA Rural Development site — they are set by the program and adjust periodically.

Typical qualification requirements

There is no USDA-mandated minimum credit score, but most approved lenders require around a 640 minimum for the automated underwriting system. Manual underwriting can be used for scores below that with compensating factors. Your debt-to-income ratio should generally be within program limits, and you must demonstrate stable income and employment. The CFPB's homebuying guide walks through the broader mortgage application process.

USDA vs. FHA vs. VA

All three are government-backed, low-down-payment (or no-down-payment) loan programs. USDA: no down payment, income limits, geographic restrictions, not restricted to military. VA: no down payment, no income limits, no geographic restrictions, military-only. FHA: 3.5% down minimum, no income limits, no geographic restrictions, open to all buyers. The right choice depends on your service status, location, and income level.