Backed 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. Here’s how to know if you’re eligible, and how to apply.

How do USDA loan programs work?

The USDA backs 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, they’ll be passed onto you as the borrower.

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

To qualify for the USDA Guaranteed program, you must:

  • Be building or buying a home in a rural area; you can find out whether your area qualifies with this map tool
  • 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

How to apply for a USDA loan

If you meet the USDA loan qualification criteria and you’re ready to buy a home, here are 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.) 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 prequalified or preapproved for your USDA loan

For a preapproval, be prepared to provide information about your financial situation, including assets, debt and income, as well as employment history. Here’s more on the difference between prequalification and preapproval.

3. Find a home in a USDA-approved area 

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

4. Complete a USDA loan application with your lender

This might already be mostly filled out based on the information you provided when you got preapproved.

5. Go through underwriting and close

As your loan application is processed, be ready to answer any questions from your lender. During this time, you’ll also obtain a homeowners insurance policy and prepare to pay closing costs.

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

If all goes smoothly, you’ll be cleared to close. On closing day, you’ll sign the mortgage note and other paperwork and get the keys to your new home.