What is a USDA Mortgage?
A USDA mortgage is a 100% home loan available in rural and suburban parts of the country. USDA mortgages are known for low mortgage rates, discounted mortgage insurance, and no down payment minimums. USDA loans accounted for 1.1% of purchase mortgages in 2024.
What You'll Learn
- Whether you qualify for rural areas and income requirements
- How much you can save compared to conventional and FHA loans
- Current rates and trends so you know if it's a good time to buy
- The exact steps to get pre-approved and close on your home
- How to overcome common barriers like credit score requirements or income limits
Key Facts at a Glance
| Requirement | USDA Mortgage |
|---|---|
| Minimum Credit Score | 640 |
| Minimum Down Payment | 0% |
| Current Average Rate | [usda-30-year-fixed-rate-current not found] |
| Area Requirement | Rural and suburban areas only. No urban areas. |
| Property Type | Single-family, townhouse, condo, modular, manufactured |
| Occupancy | Primary residence only |
| Suitable For | Home buyers of modest homes with modest income |
Key Definitions
Here are the key terms you'll encounter when getting a USDA loan:
- Guarantee Fee
- Upfront fee charged on USDA Guaranteed Loans, similar to mortgage insurance but at lower rates than FHA or conventional PMI.
- Area Median Income (AMI)
- Income threshold set by HUD for each geographic area, used to determine USDA loan eligibility. Guaranteed loans allow up to 115% AMI, Direct loans up to 50% AMI.
- Debt-to-Income Ratio (DTI)
- The percentage of your gross monthly income that goes toward debt payments. USDA loans typically require DTI below 41% for guaranteed loans.
- Loan-to-Value Ratio (LTV)
- The ratio of your loan amount to the home's appraised value. USDA loans allow 100% LTV with no down payment required.
- Rural Area
- Geographic areas designated by the USDA as eligible for USDA mortgages. Farms and small towns are generally included, along with suburban communities, small cities, and other areas that are "not urban" according to USDA guidelines.
- USDA Eligibility Map
- Interactive tool showing which geographic areas qualify for USDA loans, based on population density, housing units, and proximity to urban centers.
Benefits of USDA Mortgages
| USDA Loan Benefit | What It Means |
|---|---|
| No Down Payment | Finance 100% of the home's price; no down payment needed |
| Lower Interest Rates | Rates are often below conventional loan rates |
| Low Mortgage Insurance | Upfront and annual fees are less than FHA or most conventional |
| Flexible Credit Guidelines | Easier credit standards than most conventional loans |
| Assumable Loan | Buyer may take over your loan and rate when you sell |
A Longer Definition: USDA Mortgage
USDA mortgages are no-money-down home loans for buyers in rural USDA-eligible areas. USDA loans are backed by the United States Department of Agriculture (USDA), which created the program after World War II.
For eligible home buyers, USDA mortgages often offer the best combination of interest rate, monthly cost, and down payment.
The program is modeled after two other successful housing programs: the FHA loan and the VA loan, which showed how government agencies can help reshape homeownership.
Like the FHA and VA loan programs, the USDA mortgage program:
- Reduces down payment requirements for buyers
- Offers competitive interest rates
- Provides mortgage insurance at discounted rates
Rural Designations
The USDA mortgage is available in rural areas only. It is sometimes called a "Section 502 mortgage" because Section 502 of the Housing Act of 1949 defines what "rural" means in the context of the USDA.
Section 502 of the Housing Act of 1949 defines rural communities as having fewer than 2,500 residents and not linked to a major city; of being rural "in character" with less than 10,000 residents; or, with less than 20,000 residents not related to a metropolitan statistical area.
In 2020, the Census Bureau added additional criteria to distinguish between rural and urban areas:
- Fewer than 2,000 housing units or 5,000 people
- Fewer than 500 residents per square mile
- Not more than 425 housing units per square mile
- Not within a half-mile radius of an airport with 2,500 passengers or more per year
91 percent of the United States is within the USDA boundary, according to the USDA Eligibility Map.
Current Rural Area Criteria
| Characteristic | Current Rural Criteria |
|---|---|
| Housing units | Fewer than 2,000 housing units |
| Population | Fewer than 5,000 people |
| Population density | Fewer than 500 residents per square mile |
| Housing unit density | Not more than 425 housing units per square mile |
| Proximity to airport | Not within half a mile of an airport with 2,500+ passengers per year |
The USDA Mortgage Programs: Guaranteed, Direct, and Home Repair
The USDA housing program includes three loan types: the Guaranteed Loan program for higher-income households, the Direct Loan program for lower-income households, and a third program for financing home repairs.
The USDA offers three main types of home loan programs.
The USDA Guaranteed Loan is the most common. It allows buyers to finance 100% of the home's price, so no down payment is needed. Most USDA loans are made through this program.
The USDA Direct Loan is for low- and very-low-income buyers. The USDA lends the money directly to the buyer, not through a bank or lender. Interest rates are subsidized and loan terms up to 38 years are available for smaller monthly payments.
The USDA Home Repair Loan helps low-income, elderly, or disabled homeowners pay for repairs or improvements to their homes. Homeowners may borrow up to $40,000 at a fixed 1% interest rate, with a repayment period of up to 20 years.
The USDA Guaranteed Loan Program
The official name of the USDA Guaranteed Loan program is Section 502 Single Family Housing Guaranteed Loan Program. According to the agency, the Guaranteed Loan Program accounts for 90 percent of USDA loans made each year.
The USDA Guaranteed Loan program is the catch-all USDA mortgage. It allows for 100% financing without mortgage insurance and lets buyers come to closing with no money whatsoever.
Section 502 Guaranteed Loans are available through mortgage lenders, brokers, and retail banks. USDA loans require a minimum 640 credit score.
The USDA Direct Loan Program
The Section 502 Single Family Housing Direct Loan Program is less common and more limiting than the Guaranteed Loan program, accounting for just four percent of USDA loans made in recent years.
USDA Direct Loans are issued directly by the USDA, not through lenders, brokers, or banks. The USDA reserves Direct Loans for low- and very-low-income households, which account for 25.6% of USDA home buyers. Loan terms extend to 38 years to minimize PITI monthly payments, and buyers must partake in credit education.
The USDA pegs Direct Loan interest rates. Since December 2024 , USDA Direct Loan mortgage rates are 4.25% percent. By comparison, today's mortgage rates for a 30-year conventional loan average 6.26% .
The USDA Home Repair Loan Program
The USDA Section 504 Home Repair program makes loans up to $40,000 to help elderly, disabled, and low-income homeowners maintain the safety and livability of their homes. USDA Home Repair loans term for 20 years at a fixed interest rate of 1%. They're for existing homeowners only. You cannot use the USDA Home Repair loan for a purchase.
Compare USDA Guaranteed Loan and USDA Direct Loan
| Feature | USDA Guaranteed Loan | USDA Direct Loan |
|---|---|---|
| Income Limits | Up to 115% of area median income | Up to 50% of area median income |
| Credit Score | Minimum 640 | No minimum score |
| Loan Terms | 30 years | Up to 38 years |
| Interest Rates | Market rates | Subsidized rates |
| Availability | Through lenders | Direct from USDA |
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Average Interest Rates by Loan Type (2024)
The table below compares the effective interest rates USDA loans and other common mortgage types, so you can see how USDA stacks up.
| Loan Type | Base Rate | Insurance Cost | Effective Rate |
|---|---|---|---|
| Conventional | 6.78% | 1.20% PMI | 7.98% |
| FHA | 6.27% | 0.55% MIP | 6.82% |
| VA | 6.15% | 0.00% | 6.15% |
| USDA | 6.36% | 0.35% | 6.71% |
USDA Loan Eligibility Requirements
To qualify for a USDA mortgage, buyers and their homes must meet and adhere to USDA mortgage guidelines:
Property Must Be Rural / Non-Urban
All USDA homes must be in a USDA-eligible rural area. Use the USDA Eligibility Map to check if your target area qualifies.
No Official Minimum Credit Score
The USDA mortgage program does not have an official credit score requirement, but the USDA states that "applicants are expected to demonstrate a willingness and ability to handle and manage debt." Lenders commonly apply lender overlays that raise the minimum USDA credit score to 640 . Some mortgage lenders accept lower scores with compensating factors.
Primary Residences Only
The subject property must be used a primary residence. USDA loans cannot be used for second homes, vacation homes, investment properties or rentals.
One-Unit Homes Only
Eligible USDA property types include detached single-family homes, attached homes such as townhouses and duplexes, condominiums, planned unit developments (PUDs), modular homes, and manufactured homes that are permanently affixed to a foundation. Multi-unit homes are not allowed.
Household Income Must Be Moderate, At Most
Household income cannot exceed 115% of the area median income (AMI) for USDA Guaranteed Loans. Income limits are based on property location and family size. A family of 6 will have higher income limits than a single borrower.
Use our Income Limits calculator to see if you earn too much to qualify based on where you live.
Citizenship Is Required
USDA mortgages are available to U.S. citizens, non-citizen nationals, and qualified aliens.
USDA Mortgage Loan Limits Apply
Since 2023, USDA mortgages have been subject to loan limits. The maximum amount you can borrow depends on the county where the home is located, and limits are reviewed and updated each year. See current mortgage loan limits →
Average Down Payment by Loan Type (2024)
The table below shows average down payments by loan type. The average down payment for USDA loans is just 2.2%, much lower than conventional loans, and even lower than VA mortgages which also allow for 100% financing.
| Loan Type | Average Down Payment | Average LTV |
|---|---|---|
| Conventional | 21.1% | 78.9% |
| FHA | 4.0% | 96.0% |
| VA | 4.1% | 95.9% |
| USDA | 2.2% | 97.8% |
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Current Mortgage Rates & Market Trends
| Time Period | Conventional 30-Year Fixed Rate Mortgage Rate |
|---|---|
| Current | 6.06% |
| 1 week ago | 6.06% |
| 1 month ago | 6.06% |
| 1 year ago | 6.31% |
Historical USDA Mortgage Rates
FRED Data: OBMMIUSDA30YF
Frequently Asked Questions About USDA Mortgages
Get answers to common questions about USDA mortgage eligibility, requirements, and how the program works for rural home buyers.
Can I use a USDA loan to buy a mobile home?
Yes, USDA loans can be used to purchase mobile or manufactured homes, but they must be permanently affixed to a foundation and classified as real estate.
Are there loan limits for USDA mortgages?
USDA loans don't have specific loan limits, but your loan amount is limited by your ability to repay based on income and debt-to-income ratios.
Can I refinance a USDA loan?
Yes, USDA offers streamlined refinancing options for existing USDA borrowers, as well as cash-out refinancing in some cases.
Do I need mortgage insurance with a USDA loan?
Yes, USDA loans require both an upfront guarantee fee and an annual fee, similar to mortgage insurance, but at lower rates than many other loan programs.
Can I buy a fixer-upper with a USDA loan?
The home must meet USDA's minimum property standards, but minor repairs may be acceptable. For major renovations, you might need to consider other loan options or complete repairs before closing.
What credit score do I need for a USDA mortgage?
The USDA program has no official minimum credit score requirement, but most lenders want to see a decent history of paying bills on time.
Can I use a USDA loan for an investment property?
No, USDA loans are only for primary residences. You cannot use them for investment properties, vacation homes, or rental properties.
How do I check if my area is eligible for USDA loans?
Use the USDA Eligibility Map to check if your target area qualifies. Most areas outside major cities are eligible, including many suburban communities.
What is the maximum income to qualify for a USDA loan?
Household income cannot exceed 115% of the area median income (AMI) for USDA Guaranteed Loans. Income limits vary by location and family size.
Can I include closing costs in my USDA loan?
Yes, USDA loans allow you to finance closing costs and reasonable expenses associated with the purchase, making it easier to buy with minimal out-of-pocket costs.
How long does it take to get approved for a USDA loan?
USDA loan approval typically takes 30-45 days from application to closing, similar to other government-backed loans. Pre-approval can be done in 1-3 days.
Are USDA loans assumable?
Yes, USDA loans are assumable, which means when you sell your home, the buyer may take over your loan and interest rate with USDA approval.
