A USDA loan is a mortgage backed by the U.S. Department of Agriculture, designed to help people buy homes in rural areas

A USDA loan is a home mortgage where the USDA guarantees the lender's money if you stop paying. This may provide lets lenders offer mortgages to borrowers who might not meet the stricter requirements of conventional loans — typically people with lower credit scores, smaller down payments, or less savings. The USDA does not lend the money itself; a bank or mortgage company does, and the USDA backs it.

The program exists because rural areas often have fewer lending options and higher poverty rates than cities and suburbs. By guaranteeing loans in these areas, the USDA encourages lenders to offer mortgages there. You can use a USDA loan to buy a single-family home, build one, or repair one you already own — but only in a location the USDA classifies as rural or a small town.

USDA loans come in two main types: may provide loans (the most common) and direct loans (made directly by the USDA, available only to borrowers with very low income). This guide focuses on may provide loans, since that is what most borrowers use.

Key Takeaways

  • USDA loans require zero down payment and allow credit scores as low as 580, though most lenders prefer 620 or higher.
  • The property must be in a rural area or small town as defined by the USDA, which you can check on the USDA's property may be able to access map.
  • You pay a one-time may provide fee (typically 2 to 3.6 percent of the loan amount) and an annual fee (0.3 to 0.55 percent), both usually rolled into your monthly payment.
  • Your income cannot exceed the limit for your county, which varies by location and family size and is published annually by the USDA.
  • You must occupy the home as your primary residence, not use it as a rental or investment property.

Where you can buy with a USDA loan

The USDA defines may be able to access rural areas using a map that includes most of the country outside major cities and their when ready suburbs. A property in a town of 10,000 people can be may be able to access; a property in a suburb of 50,000 can be ineligible, depending on how the USDA draws the boundary. The map changes yearly, so a property that was ineligible last year might be may be able to access now, or vice versa.

You can check whether a specific address is may be able to access on the USDA's Property may be able to access Map at rd.usda.gov. Enter the street address and the map will tell you yes or no. If the property is on the border, you may see "pending" — contact the USDA directly to confirm. Some lenders also run this check for you during the pre-approval process.

The property itself must be a single-family home. You cannot use a USDA loan to buy a multi-unit building, a condo in a building with more than four units, or a mobile home on rented land (though you can buy a mobile home on land you own).

Income limits and household size

Your household income cannot exceed the limit set by the USDA for your county. These limits change every year and vary based on how many people live in your home. A family of four in one county might have a limit of $90,000, while a family of four in another county might have a limit of $110,000.

Household income includes wages, self-employment income, rental income, Social Security, pensions, and child support — basically all money coming into your home before taxes. It does not include one-time payments like insurance settlements or inheritances.

You can find the income limits for your county on the USDA's website at rd.usda.gov/programs-services/single-family-housing-may provide-loan-program. The limits are organized by state and county. If your income is above the limit, you cannot use a USDA may provide loan, though you might be able to use a USDA direct loan if your income is very low (which is rare).

Down payment and closing costs

USDA loans require zero down payment, meaning you can finance 100 percent of the home's purchase price. This is one of the largest differences from conventional loans, which typically require 3 to 20 percent down. You still pay closing costs — the fees charged by the lender, appraiser, title company, and others — but you can ask the seller to cover some or all of these costs, which many sellers will do in a competitive market.

In addition to closing costs, you pay a may provide fee to the USDA. This is a one-time fee that protects the lender if you default. The fee is typically 2 to 3.6 percent of the loan amount, depending on the size of your down payment (even though it is zero, the USDA calculates this as if you put down a small amount). The fee is usually rolled into your loan, so you pay it over time as part of your monthly payment rather than upfront.

You also pay an annual fee (sometimes called an annual may provide fee or annual insurance premium) of 0.3 to 0.55 percent of the remaining loan balance each year. This is also rolled into your monthly payment. Both fees are required and cannot be waived.

Credit score and debt requirements

The USDA does not set a minimum credit score, but most lenders require a score of 620 or higher. Some lenders will work with scores as low as 580, and a few will go lower if you have compensating factors — such as a large savings account, a co-signer, or a strong employment history. Your credit report must show that you have paid your bills on time; recent late payments, collections, or charge-offs will make approval much harder.

Lenders also look at your debt-to-income ratio, which is the total of your monthly debt payments divided by your gross monthly income. USDA loans typically allow a ratio up to 41 to 43 percent, though some lenders will go higher if your credit is strong. This means if you earn $4,000 per month, your total monthly debt payments (including the new mortgage) should not exceed about $1,640 to $1,720.

Debt includes car loans, student loans, credit cards, personal loans, child support, and alimony. It does not include utilities or rent (though your new mortgage payment will be counted). If you have high existing debt, you may need to pay down balances before you can get approved.

How to move forward with a USDA loan

The first step is to contact a lender that offers USDA loans — not all banks and mortgage companies do. You can search for lenders on the USDA's website or ask a real estate agent for a referral. Many credit unions and community banks offer USDA loans, as do large national lenders.

When you contact a lender, ask for a pre-approval. During pre-approval, the lender will review your income, credit, and debts to tell you how much you can borrow and whether you meet USDA requirements. Pre-approval is free and does not commit you to anything. The lender will also confirm that the property you want to buy is in an may be able to access area.

Once you find a home and make an offer, the lender will order an appraisal to confirm the home is worth at least what you are paying. The USDA requires the home to meet certain safety and livability standards — it must have a safe roof, working plumbing and electrical systems, and no major structural damage. Homes that fail inspection can sometimes be repaired by the seller before closing, or you can walk away from the deal.

The full approval process typically takes 30 to 45 days from the time you submit your process to closing day, though this varies by lender and how quickly you provide documents.

Frequently Asked Questions

Can I use a USDA loan to buy a home in the city?

Only if the specific address is in an area the USDA classifies as rural or a small town. Many suburbs and small cities are may be able to access, but most major cities and their when ready suburbs are not. Check the USDA's Property may be able to access Map for the exact address you want to buy.

What happens if I move after I buy with a USDA loan?

You must occupy the home as your primary residence when you close. If you move away and rent the home out, you are in violation of the loan terms and the lender can demand full repayment. You can sell the home and pay off the loan at any time without penalty.

Can I get a USDA loan if I have bad credit?

Most lenders require a credit score of 620 or higher, though some will work with scores as low as 580. Recent late payments, collections, or charge-offs make approval much harder. If your credit is poor, you may need to wait and rebuild your score, or find a lender that specializes in lower-credit borrowers.

Do I have to pay the may provide fee upfront?

No. The one-time may provide fee is almost always rolled into your loan amount, so you pay it over time as part of your monthly payment. The annual fee is also included in your monthly payment. You do not pay either fee separately at closing.

What if my income is above the limit?

You cannot use a USDA may provide loan if your income exceeds the limit for your county and family size. A USDA direct loan might be available if your income is very low, but these are rare and have stricter requirements. Otherwise, you would need to look at conventional loans or other programs.