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

The USDA does not lend money directly. Instead, banks and mortgage lenders issue loans that the USDA guarantees — meaning if you stop paying, the USDA covers the lender's loss. This may provide lets lenders offer mortgages to borrowers who might not otherwise get approved, particularly those with lower credit scores or minimal savings. The trade-off is that the loan is only available for homes in designated rural areas, and you must meet income limits based on your household size and the county where you want to buy.

The core benefit is the no-down-payment structure. Conventional mortgages typically require 3 to 20 percent down; FHA loans require 3.5 percent. A USDA loan requires zero down. You also pay a one-time may provide fee (usually 2 percent of the loan amount, rolled into your mortgage) instead of the private mortgage insurance that conventional and FHA borrowers pay monthly. Over time, this can save thousands of dollars.

Key Takeaways

  • USDA loans require no down payment and are available only in rural areas designated by the USDA, which you can check on their online map before you start shopping.
  • Your household income must fall below a limit set by county — typically between $50,000 and $90,000 for a family of four, depending on location.
  • You need a credit score of at least 580 to 640 (varies by lender) and must show you can afford the monthly payment, property taxes, insurance, and HOA fees if applicable.
  • The USDA may provide fee is a one-time cost of roughly 2 percent of the loan amount, added to your mortgage balance rather than paid upfront.
  • The loan process takes 30 to 45 days from application to closing, similar to a conventional mortgage, and you work with a private lender, not the USDA directly.

Where you can use a USDA loan

The USDA defines "rural" broadly — it includes small towns, villages, and unincorporated areas, but excludes the core of large cities and their immediate suburbs. About 97 percent of U.S. land is may be able to access, but only about 60 percent of the population lives in USDA-may be able to access areas because rural counties have fewer people.

You can check whether a specific address qualifies by entering the street address into the USDA's online may be able to access map at rd.usda.gov. The map shows the property in green (may be able to access), yellow (ineligible), or sometimes a border case that requires manual review. If the property is in an ineligible area, no USDA lender will issue the loan, regardless of your finances. If it is may be able to access, you can proceed — but you still must meet income and credit requirements.

Properties must be single-family homes, townhouses, or condos (in some cases). Mobile homes on permanent foundations may may have access to. The home cannot be a second home or investment property; you must intend to live there as your primary residence.

Income limits and household size

The USDA sets a maximum income for each county based on the area's median household income. The limit is typically 115 percent of the county median. For a family of four in a rural county with a $60,000 median income, the limit might be around $69,000. For a family of four in a wealthier rural county, it could be $90,000 or higher. The USDA publishes these limits by county each year, and they change.

Income includes wages, self-employment earnings, Social Security, pensions, and child support you receive. It does not include one-time payments like tax refunds or insurance settlements. If you are self-employed, the lender will ask for two years of tax returns to verify income.

Household size includes you, your spouse (if married), and any dependents you claim on your tax return. If your income is above the limit, you do not meet the requirement, and no USDA lender can approve you. If you are at or below the limit, you move to the next step: credit and debt review.

Credit score and debt-to-income ratio

Most USDA lenders require a credit score of at least 580 to 640, though some will go lower with compensating factors (like a large savings account or a co-signer). A credit score reflects your history of paying bills on time. If you have missed payments, collections accounts, or recent bankruptcy, your score will be lower, and some lenders will decline you. Others specialize in lower-credit borrowers and may approve you at a higher interest rate.

The lender also calculates your debt-to-income ratio: the total of all your monthly debt payments (car loans, credit cards, student loans, child support, and the new mortgage) divided by your gross monthly income. The USDA allows up to 43 percent for most borrowers, meaning if you earn $4,000 per month, your total debts can be no more than $1,720. Some lenders will stretch to 50 percent if you have strong credit and savings, but 43 percent is the standard.

The new mortgage payment itself is the largest piece of this calculation. A lender will estimate your payment based on the loan amount, interest rate, property taxes, homeowners insurance, and the USDA may provide fee. If that payment, plus your existing debts, exceeds 43 percent of your income, you will not be approved for that loan amount — though you may be approved for a smaller one.

The USDA may provide fee and closing costs

The USDA may provide fee is a one-time charge of approximately 2 percent of the loan amount. On a $200,000 loan, that is roughly $4,000. Unlike private mortgage insurance, which you pay monthly and can eventually cancel, the may provide fee is added to your loan balance and you pay it off over the life of the mortgage (typically 30 years). This means you pay interest on the fee as well.

You do not pay the may provide fee upfront out of pocket. The lender rolls it into the total loan amount. So if you are borrowing $200,000, your actual loan becomes $204,000. This is one reason USDA loans can be attractive: you avoid a large cash outlay at closing.

Other closing costs — title insurance, appraisal, credit report, underwriting, and attorney fees — still apply and typically total 2 to 5 percent of the loan amount. These vary by lender and state. The USDA does not cover these; you and the seller may negotiate who pays them, or the seller may cover them as part of the sale agreement. Some USDA programs allow the seller to pay all closing costs on your behalf.

How the application and approval process works

You start by finding a lender that offers USDA loans. Not all banks do; credit unions, mortgage brokers, and online lenders often specialize in them. Once you choose a lender, you submit an application with your income documents (pay stubs, W-2s, or tax returns), bank statements, and a list of debts. The lender pulls your credit report and verifies your employment.

The lender then orders an appraisal of the property to confirm it is worth at least the loan amount. If the appraisal comes in low, you may need to renegotiate the price, put down money, or walk away. The appraisal also checks that the home meets USDA property standards — it must be safe, sanitary, and adequate for living. Homes with major structural damage, mold, or lack of running water will not pass.

Once the appraisal and your financial documents are approved, the lender sends everything to the USDA for a final review. The USDA does not make the lending decision; the lender does. But the USDA reviews the file to confirm the property is in an may be able to access area, the income limit is met, and the may provide fee has been calculated correctly. This step typically takes one to two weeks. After USDA approval, you move to closing, where you sign documents and receive the keys. The entire process from application to closing usually takes 30 to 45 days.

USDA loans versus conventional and FHA mortgages

A conventional loan requires a down payment (usually 3 to 20 percent), has no income limit, and is available anywhere. If you put down less than 20 percent, you pay private mortgage insurance monthly until you reach 20 percent equity. Conventional loans favor borrowers with good credit and savings.

An FHA loan requires only 3.5 percent down, has no income limit, and is available anywhere. It allows lower credit scores than conventional loans. Like conventional loans with less than 20 percent down, FHA loans require mortgage insurance, paid monthly for the life of the loan. FHA loans are popular in urban and suburban areas where USDA loans are not available.

A USDA loan requires zero down, has an income limit, and is available only in rural areas. It has a one-time may provide fee instead of monthly insurance. For rural borrowers with low savings and moderate income, a USDA loan is often the only path to homeownership. For borrowers in cities or suburbs, or those with income above the USDA limit, conventional or FHA loans are the only options.

Frequently Asked Questions

Can I use a USDA loan to buy a house in a town or small city?

It depends on the specific location. The USDA map shows which addresses may have access to. Many small towns and rural areas within or near cities are may be able to access, but the core of cities and their immediate suburbs are not. Check the address on the USDA may be able to access map before you make an offer.

What if my income is slightly above the limit?

If your income exceeds the county limit, you cannot get a USDA loan, even by one dollar. Income limits are firm. However, if your household size changes (a dependent moves out or is born), your limit may change, and you could reapply.

Do I need a down payment saved up?

No. A USDA loan requires no down payment from you. The may provide fee is added to the loan, not paid upfront. However, you still need to show the lender that you have some savings or assets, and you must be able to afford the monthly payment, taxes, and insurance.

What happens if the home does not pass the USDA appraisal?

If the home fails inspection due to safety or sanitary issues, the seller must fix the problems before closing, or you can walk away. You cannot close on a home that does not meet USDA standards. This is a protection for you — it ensures the home is livable and worth the loan amount.

Can I refinance a USDA loan later?

Yes. You can refinance into another USDA loan, a conventional loan, or an FHA loan once you have built equity or your circumstances change. If you refinance into a conventional loan and have 20 percent equity, you can avoid mortgage insurance entirely.