The USDA Home Loan Program

Most people are familiar with conventional mortgage and government backed FHA and VA loans. However, many home buyers are not even aware of USDA backed home loans.

Program Information

Also known as "RD" loans; low interest, fixed-rate home ownership loans are provided to qualified persons by the USDA Rural Development program. Financing is offered at fixed-rates and terms through a loan from a private financial institution and guaranteed by USDA Rural Development for qualified persons. These home loan programs do not require a down payment. USDA Rural Development also offers competitive grants to public and private non-profit housing organizations and Federally Recognized Tribes to enable hard working families to build their own homes.

What Makes a USDA Loan?

Well built and affordable housing is essential to the vitality of communities in rural America. Towards this end the United States Department of Agriculture loan program targets home buyers in rural areas of America. There is no required down payment. They offer competitive interest rates and extended repayment terms. In this way, USDA loans help to bring home ownership within reach of many people who are otherwise unable to secure financing. This federal loan program was established to help maintain and revitalize rural communities.

USDA loans are a highly effective option for first time homebuyers and those with little or no down payment. They offer 100 percent financing and up to 6% of the purchase price towards closing costs. With the ability to finance the entire purchase, low up-front and annual fees, USDA loans can be more attractive than FHA or even VA loans. Home buyers looking to purchase, renovate, or build single-family homes under the USDA programs have two options:

1) Direct loans; these are government subsidized. The USDA offers them directly through its Single Family Housing Direct Loan Program. They are intended to assist low income home buyers.
2) Guaranteed loans; these are intended to help low and moderate income home buyers. Private mortgage companies issue the loan and the USDA guarantees it through the Single Family Housing Guaranteed Program.

The USDA also provides grants and loans to repair single-family homes, issues and guarantees loans for multi-family homes and even offers rental assistance.

USDA Loan Requirements

In order to qualify for a USDA loan the buyer and the property must both meet specific criteria. The applicant must satisfy the following requirements:

1) Minimum and maximum limits on income. Income based rules depend on your location and family size. See county level pages at for specifics in the area you are interested in.
2) The buyer and co-buyer, if one exists, must reside at the property.
3) The buyer must prove their financial strength to handle the loan. Applicants must be employed at least 24 months prior to the date of the application. Applicants that fail to meet this criteria may be able to satisfy with alternative documentation.
4) The minimum credit score to get a USDA backed loan is 660. However, many lenders may require a credit score of at least 680 to ensure the loan will close.
5)Buyers applying to the direct program must attend a home buyer education class.
6) The buyer must be a U.S. citizen, U.S. noncitizen national or qualified alien resident.
7) The buyer must have the legal capacity to incur the loan obligation. The buyer must not have previously been suspended or debarred from participation in federal programs.
8) The buyer must demonstrate willingness to meet credit obligations.
9) The buyer must purchase a property that meets all USDA loan program criteria.

Properties requirements

The property must be located in a rural area of the United States. Homes in the direct program must also meet the following additional criteria.

1) The property is typically 2,000 square feet or less. Exceptions are made depending on family size.
2) The property must not have a market value greater than the applicable area loan limit. See county level pages at for loan limit details in the area you are interested in.
3) The property must not have in-ground swimming pool.
4) The property can not be legally designed for income producing activities.

What Counts as Rural?

The USDA applies a broad definition to the term "rural". Areas with a population of less than 35,000 are generally eligible for these programs. However, there are many exceptions. The USDA maintains complex geographic boundaries around high population centers. These areas are designated as ineligible for a USDA backed home loan. takes the work out of determining if a given property is within an exclusion zone.

The Approval Process

The time required to process an application for the USDA direct program will vary based on funding availability and regional program demand. Local USDA staffing may also impact the speed of processing. Approval time for the guaranteed program will vary by private lender. As a buyer in this program you can inquire about their processing time.

Maximum Loan Amounts

The direct program maximum loan amount is based on state and county. There is no maximum loan amount in the guaranteed program.

Interest Rates and Loan Terms

USDA loans provide fixed interest rates based on current market rates, applicant's income level and family size. Interest rates in the guaranteed program vary by lender and are based on a 30-year term.USDA loans come with an annual fee and an up-front fee. The current up-front fee is 1 percent which is rolled into the loan amount. These loans typically require no down payment. However, a buyer who exceeds certain asset limits might be asked to use a portion of those assets to guarantee the loan.

How to find a USDA-approved home

The process of identifying an eligible property is made quick and easy with the help of You can find eligible properties in the state, county and city where you would most like to reside. Once you have identified a property can put you directly in contact with local listing agents and loan brokers who can assist. Begin your search today!