A USDA loan is a mortgage backed by the U.S. Department of Agriculture that lets you buy a home in a rural area with no down payment and no mortgage insurance.

The USDA does not lend money itself. Instead, banks and mortgage lenders make the loan, and the USDA guarantees it — meaning if you stop paying, the government covers the lender's loss. That may provide lets lenders offer terms they would not otherwise: zero down payment, lower interest rates than conventional mortgages, and no private mortgage insurance (PMI), which saves you hundreds of dollars per month.

The catch is location. You can only use a USDA loan to buy a home in a designated rural area. The USDA draws these boundaries, and they cover far more land than most people expect — including suburbs and small towns near major cities. You cannot use a USDA loan in urban centers or densely populated suburbs, but you may be able to use one in places that feel suburban to you.

Key Takeaways

  • USDA loans require zero down payment and no mortgage insurance, which makes monthly payments lower than conventional loans for the same home price.
  • You must buy in a USDA-designated rural area, which you can check on the USDA website before you start shopping.
  • Your income cannot exceed the limit for your county, and limits vary widely — some rural counties allow six-figure incomes, others do not.
  • The loan process takes longer than conventional mortgages because the USDA adds an extra review step after the lender approves you.
  • You pay a one-time may provide fee (usually 2 to 3.6 percent of the loan amount) and a small annual fee, both of which can be rolled into your monthly payment.

Where you can use a USDA loan

The USDA maintains a map on its website where you enter an address and see whether it falls in an may be able to access rural area. Do this before you fall in love with a house — location may be able to access is a hard stop. The boundaries are not based on how rural a place feels; they are based on population density and distance from urban centers. A town of 10,000 people might be may be able to access; a suburb of 50,000 might not be.

Rural areas cover roughly 97 percent of U.S. land but only about 20 percent of the population. That means you can find may be able to access properties in places with good schools, shopping, and job markets — not just remote farmland. However, you cannot use a USDA loan in any city proper or in suburbs immediately adjacent to major metropolitan areas.

Income limits and who qualifies

USDA loans have income caps that vary by county. Your household income — including wages, self-employment income, rental income, and some benefits — cannot exceed the limit for the county where you are buying. The limit is usually between $60,000 and $90,000 for a family of four, but it can be higher in some rural counties and lower in others. You can find your county's limit on the USDA website.

Income limits exist because USDA loans are meant for low-to-moderate-income buyers. If your income is above the limit for your county, you cannot get a USDA loan there, even if you have excellent credit and savings. This is one of the most common reasons applications are denied, so check the limit for your specific county before you apply.

There is no minimum credit score set by the USDA, but most lenders require a score of 640 or higher. Some lenders will work with scores as low as 580 if you have compensating factors — like a large down payment (though USDA loans do not require one) or a strong payment history. Your debt-to-income ratio (how much you owe monthly compared to how much you earn) usually cannot exceed 41 to 43 percent, depending on the lender.

Down payment and closing costs

USDA loans require zero down payment. You do not need to save 3, 5, or 20 percent of the home price. This is the biggest advantage over conventional loans and makes homeownership possible for people who have not had time to accumulate a large savings account.

You do pay a may provide fee — a one-time charge that protects the lender if you default. This fee is usually 2 to 3.6 percent of the loan amount and can be rolled into your monthly payment instead of paid upfront. You also pay an annual fee (typically 0.35 percent of the remaining loan balance) for the first two years, which is also usually added to your monthly payment. These fees are lower than the private mortgage insurance you would pay on a conventional loan with a small down payment.

You still pay closing costs — title insurance, appraisal, inspection, attorney fees, and other standard charges. These typically run 2 to 5 percent of the home price. Unlike the may provide fee, closing costs are not subsidized, though some sellers will negotiate to cover part of them as part of the sale.

How the USDA loan approval process works

You start by finding a lender that offers USDA loans — not all banks do. The lender will pre-may have access to you based on your income, credit, and debt, which takes a few days. Pre-qualification is not a commitment; it just tells you how much house you can afford.

Once you find a home and make an offer, the lender orders an appraisal and begins the full application process. This is where USDA loans differ from conventional loans: after the lender approves you, your file goes to the USDA for a second review. The USDA checks that the property is in an may be able to access area, that the home meets minimum standards, and that your income and debt are within limits. This extra step adds one to two weeks to the timeline.

The whole process — from application to closing — usually takes 30 to 45 days, compared to 21 to 30 days for a conventional loan. If there are issues (missing documents, income questions, property problems), it can take longer.

Interest rates and monthly payments

USDA loan interest rates are typically lower than conventional mortgage rates because the government may provide reduces the lender's risk. The exact rate depends on market conditions, your credit score, and the lender you choose. Rates change daily, so you will need to shop with multiple lenders to find the best offer.

Your monthly payment includes principal, interest, property taxes, homeowners insurance, and the annual USDA may provide fee. Because there is no down payment and no mortgage insurance, your payment is often lower than it would be on a conventional loan for the same home, even if the interest rate is slightly higher.

Property requirements and inspections

The home must meet USDA minimum property standards. It cannot have major structural damage, hazardous materials, or code violations. The USDA does not require a new home — you can buy an older house — but it has to be in safe, livable condition. A home inspector (which you hire separately) will identify problems, and the seller usually has to fix major issues before closing.

The appraisal is more thorough than a conventional appraisal because the USDA reviews it. If the appraiser finds that the home does not meet standards, the USDA will require repairs before it will may provide the loan. This can delay closing or kill the deal if the seller refuses to fix problems.

Frequently Asked Questions

Can I use a USDA loan to buy a second home or investment property?

No. USDA loans are only for primary residences — homes you will live in as your main address. You cannot use one to buy a vacation home, rental property, or investment house. The home must be your principal residence from the time you close until you sell it or refinance into a different loan type.

What happens if my income goes above the limit after I get the loan?

Nothing. Income limits only matter at the time you apply. If you get a raise or your household income increases after closing, you keep the loan. The USDA does not monitor your income after you are approved.

Can I get a USDA loan if I have had a foreclosure or bankruptcy?

Yes, but there are waiting periods. Most lenders require three years after a foreclosure and two to three years after a bankruptcy discharge. Some lenders are stricter. Your credit score and the reason for the foreclosure or bankruptcy also matter. Talk to a USDA lender about your specific situation.

Do I need a real estate agent to buy with a USDA loan?

No, but most people use one. An agent helps you find homes in may be able to access areas, negotiate the price, and navigate the inspection and appraisal process. The seller typically pays the agent's commission, so using one does not cost you extra.

Can I refinance a USDA loan into a conventional loan later?

Yes. If your income rises above the limit or you want to remove the annual may provide fee, you can refinance into a conventional mortgage. You will need to meet conventional lending standards (usually a higher credit score and a down payment or equity in the home), but there is no rule against switching loan types.