Guaranteed by the U.S. Department of Agriculture, USDA home loans are available to borrowers in certain rural areas. If you’re in an eligible area, you could qualify for this special no-down payment mortgage, provided your income falls within the program’s criteria.

How do USDA loan programs work?

The USDA guarantees several mortgage programs, including the Single-Family Housing Guaranteed Loan Program (sometimes known as Section 502 Guaranteed), which assists USDA-approved lenders with providing 30-year, fixed-rate financing to low- to moderate-income homebuyers in specially designated rural areas.

The key benefit of USDA loans: You don’t have to make a down payment — you can receive up to 100 percent financing for the purchase or construction of a home. Unlike other types of mortgages, there are also no limits on the amount you can borrow.

The downside: There are guarantee fees when you close the loan and again annually for the duration of the loan’s term. The upfront fee equals 1 percent of the loan (the amount you borrowed); the annual fee equals 0.35 percent. While these fees are charged to your lender, in most cases, your lender will pass them on to you.

While the program’s name includes “Single-Family,” the home can actually be a detached or attached property, a condominium, a home in a planned unit development (PUD) or a modular or manufactured home.

In addition to the Guaranteed program, the USDA offers other home loan programs, including:

  • Single-Family Housing Direct Loans (Section 502 Direct) – Low-interest home loans available through local USDA offices; only available to low- to very low-income borrowers in certain rural areas
  • Single-Family Housing Home Repair Loans (Section 504) – Low-interest home loans or grants for improvements or repairs, available through local USDA offices; only available to low- to very low-income homeowners in certain rural areas

USDA loans are also eligible for refinancing.

How to qualify for a USDA loan

Compared to a traditional mortgage, to qualify for a USDA loan, you must meet specific income requirements and plan to buy a house in an eligible area. This can make getting approved for a USDA loan somewhat more challenging than a traditional mortgage. However, if you do meet the qualifications, a USDA loan can help you become a first-time homeowner.

To qualify for the USDA Guaranteed program, you must:

  • Be building or buying a home in a rural area
  • Have a household income within the program’s limits for your area; you can find out whether you qualify with this tool
  • Fulfill your lender’s requirements, which might include a minimum credit score (640 is common)
  • Live in the home as your primary residence

USDA Guaranteed program

The income requirements for a USDA guaranteed mortgage will depend primarily on factors like your location and family size. However, there are some universal requirements to keep in mind. You must:

  • Have an income that does not exceed 115% of the national median household income
  • Meet your mortgage lender’s credit requirements
  • Live in a qualified rural area
  • Live in the home as your primary residence
  • Meet citizenship requirements: Be a U.S. citizen, non-citizen national or have qualified alien status

USDA Single-Family Housing Direct Loan

This loan is designed for low- and very low-income borrowers. It provides payment assistance to help applicants find safe and sanitary housing. The program essentially offers a short-term subsidy to help people in rural areas get back on their feet. To qualify, you must:

  • Agree to live in the property as your primary residence
  • Be unable to obtain a loan from other sources
  • Currently be without safe and sanitary housing
  • Be a citizen or eligible non-citizen
  • Have the legal capacity to incur a U.S. loan
  • Not live in a property designed for income-generating purposes

How to apply for a USDA loan

If you meet the USDA loan qualification criteria and you’re ready to buy a home, take these next steps:

1. Compare and contact USDA-approved mortgage lenders

Here’s the current list of USDA lenders by state. (If you’re planning to build a home, here’s the current list of USDA construction loan lenders.) Keep in mind not all lenders offer USDA loans, but most applicants can find multiple options to choose from. The biggest USDA lenders include:

Many USDA loans come with below-market rates, but it’s still worthwhile to compare costs — aim to compare at least three lenders.

2. Get preapproved for your USDA loan

A preapproval letter shows sellers that you are serious about purchasing a home and likely to receive funding if your financial situation doesn’t change. Having this letter can streamline the purchasing process.

Common documents required for preapproval include:

  • Proof of income, such as pay stubs and tax returns
  • Account statements for financial assets, such as CDs or mutual funds
  • Statements for car loans, student loans and other debt
  • Credit score information
  • Identification documents, including a government ID and social security card

Here’s more on the difference between prequalification and preapproval and how to get preapproved for a mortgage.

3. Find a home in a USDA-approved area

As you shop for a home, you can use the USDA property eligibility tool to see if a particular address will qualify for a USDA mortgage. If you don’t know where to start, the USDA also offers a list of qualified homes for sale by state.

Having a real estate agent that has worked with people seeking USDA loans might help you find the best property for your needs in an eligible area. Use our Bankrate RE Agent Match tool to find an agent near you.

Once you find an eligible home you like, make an offer. If it’s accepted, you’ll sign the purchase and sale agreement with the seller, provide any initial earnest money deposit and move on to applying for your mortgage.

4. Go through underwriting and loan approval

Once you’ve made an offer on a home, you’ll need to submit a USDA loan application to your lender. As your lender processes your application, be ready to answer any questions. During this time, you’ll also obtain a homeowners insurance policy and prepare to pay closing costs. While you’re doing this, the underwriter is verifying your income and credit, having the property appraised and ordering a title search.

During underwriting, be careful not to make any changes to your credit or finances, such as buying a car or taking out a new credit card. If you do, your lender might need to restart the underwriting process, which could delay your closing.

5. Close on your new home

Once your lender approves your loan, you’re ready to proceed to closing: the final step in purchasing a house. While timelines can vary, it typically takes 40-50 days to close on a home, from the time you make an offer to closing day itself. On closing day, you’ll sign the mortgage note and other paperwork and get the keys to your new home.

Bottom line

The no-down payment requirement associated with USDA loans makes homeownership more accessible. While USDA loans have stricter location restrictions than a traditional home loan, if you’re a low- to middle-income family trying to buy in a rural area, they can be an excellent option. To get a USDA loan, find a USDA-approved lender and consider working with a real estate agent experienced with these loans to help you buy an eligible home.