USDA Loans

usda home loans

USDA home loans can be the perfect way to purchase your dream home.

With 100% financing and really low rates, USDA loans are one of the best loans for low-income borrowers and a great alternative to traditional mortgage programs.

In this article, we’ll discuss how you can use the USDA Home Loan program to finance the home you’ve always wanted.

We will also cover key points such as qualification requirements and repayment options so that you have all the information needed to decide if a USDA loan is right for you. So let’s jump in and learn more about one of the most popular mortgage financing options available today – USDA Home Loans!

What Is A USDA Loan?

A USDA loan is a government-backed home loan for low-income borrowers that makes buying a home more accessible in rural communities across the country.

USDA loans are backed by the U.S. Department of Agriculture in much the same way as VA loans are backed by the Department of Veterans Affairs.

With government backing, mortgage lenders can offer lower interest rates than conventional loans.

How USDA Loans Work

USDA loans are a great way for those looking get into a house with no money down.

These government-backed loans can be used to finance up to 102.5% of the home’s value and typically offer interest rates lower than those found with conventional loans.

On top of that, USDA loans allow you to use gift funds or grants as part of the financing package which makes things even easier.

The USDA program has helped countless Americans purchase their forever homes, and with just a little research, it may be able to help you too.

Types of USDA Loans

A USDA home loan can be divided into 3 types:

  1. Section 502 guaranteed loan
  2. Section 502 direct home loan
  3. Section 504 home improvement loan

The most popular is the Section 502 guaranteed loan, which allows homebuyers to finance up to 90% of the purchase price. In much the same way as conventional mortgages are backed by Fannie Mae and Freddie Mac—the government-sponsored entities that purchase most conventional/conforming mortgages from lenders and package them as bonds to sell to investors—these loans are issued by USDA-approved lenders and insured by the agency.

In addition to the USDA guaranteed loan program, the department offers two direct-issue programs—the Section 502 direct home loan and the Section 504 home improvement loan.

Borrowers with lower incomes can take advantage of these loans to purchase or improve their homes for a larger amount. There are, however, requirements regarding property, income, and mortgage insurance. Also, each program has its size limits and interest rate requirements.

USDA Loan Eligibility Requirements

In order for you to be considered for a USDA construction loan or a USDA loan to buy a home, you need to meet a few of the requirements.


In order to qualify, you must be a U.S. resident, a noncitizen national, or a permanent resident alien.


No vacation homes or investment properties – for you to get the benefits of a USDA loan, the home you buy needs to be your primary residence where you live.


A USDA loan can only be used if the home is located in an eligible rural area.

To check if a home qualifies, visit the USDA’s eligibility site to view a map of eligibility.

This interactive map will allow you to search for a specific property to see if it’s located within a geographic location deemed eligible by the USDA.


The income requirements for a USDA loan vary depending on the location of the property, family size, and other factors. Generally speaking, applicants must fall below 115% of the area median income (AMI) as determined by USDA Rural Development guidelines.

If you want to qualify for a USDA loan, you need to demonstrate that you can dependably make your mortgage payments for at least 12 months based on your current income and assets, plus any savings you may have.

Your mortgage lender will take your debt-to-income (DTI) ratio into account when making their decision. To maximize your chances of getting approved, try to keep your DTI ratio under 43%.

If you want to calculate this number, divide all your monthly financial obligations like rent, auto loans, and credit card payments by your gross monthly income. Don’t include expenses like food and utility costs in your calculation.

Credit Score

The minimum credit score requirement for a USDA home loan is 620.

If your score is under that or below it, that doesn’t mean you can’t get a USDA loan. It just means you need to chat with a lender to see what your options are.

If your credit isn’t in the best shape, there are still steps you can take to improve it within a short period of time. In many cases, you can bring your score up really easily.

USDA Loans vs. Conventional Mortgage

It is important to understand that USDA loans are subsidized by the United States government, and specifically, they are backed by the U.S. Department of Agriculture, so the USDA assumes the responsibility of paying the lender back in the event that you default on your loan.

Conventional mortgages, unlike USDA loans, aren’t insured by the U.S. government. In contrast to USDA loans, conforming loans are purchased by two government-sponsored companies, Fannie Mae and Freddie Mac – therefore, they must conform to their guidelines as well. The eligibility, pricing, and features of non-conforming loans, on the other hand, are less standardized.

USDA Loans vs. FHA Loans

Both are government-backed loans, but the main differences boil down to:

  • USDA loans have no down-payment, FHA loans do
  • USDA loans have less monthly mortgage insurance than FHA loans
  • USDA loans must be for a home in a USDA eligible area, whereas with an FHA loan, it can be anywhere

USDA Loans vs. VA Loans

The biggest difference between USDA loans and VA loans are:

  • USDA has income limits, VA doesn’t
  • USDA is available to anyone, VA is just available to veterans


Can I use a USDA loan to purchase a property in a non-rural area?

Yes, you can use a USDA loan to purchase a property in a non-rural area. In fact, lots of areas that you would think aren’t rural actually qualify. However, the property must still meet certain eligibility requirements related to location and income limits. You can use this tool to search the area you’re interested in.

Are there any limitations on the properties that can be purchased with a USDA loan?

Yes, there are limitations on the properties that can be purchased with a USDA loan. These include restrictions on location (the property must be located in an eligible rural area), size of the home (it cannot exceed certain square footage limits) and type of dwelling (single-family homes only). Additionally, borrowers must meet income requirements to qualify for a USDA loan.

Is a USDA loan only available for first-time home buyers?

No, a USDA loan is not only available for first-time home buyers. It can be used by anyone who meets the income and credit requirements of the program and is looking for 100% financing.

Should you get a USDA loan?

USDA loans can be a perfect fit if you don’t want to dish out a lot of money for a down payment.

The only caveat is that you have to buy in USDA eligible areas.

If that works for you, then talk to one of our home loan experts today or check your eligibility online for free!