Learning centerLoan types
USDA Loans: Zero-Down Financing for Rural and Suburban Homes
A USDA loan helps low- and moderate-income buyers purchase a home in eligible rural and suburban areas, usually with no down payment. More places qualify than most people expect. Here’s how USDA loans work, who qualifies and how they compare with a conventional loan.
What a USDA loan is
The U.S. Department of Agriculture’s Rural Development agency runs several housing programs. The one most buyers use is the Single Family Housing Guaranteed Loan Program. You borrow from an approved lender, and USDA guarantees the loan, which lets the lender offer:
- No down payment in most cases
- Low mortgage insurance costs compared with other low-down-payment loans
- A 30-year fixed rate
USDA also lends directly to very-low-income buyers through its Single Family Housing Direct program. Those loans are made by USDA itself, not by private lenders, and you apply through your local USDA office.
Who qualifies
To use a USDA guaranteed loan, you generally need:
- Household income at or below the program limit. The limit is 115% of the area’s median income, adjusted for household size, and it counts the income of everyone in the household.
- A home in an eligible area. See below.
- To live in the home as your primary residence.
- Steady income and a manageable payment. Your lender will review your credit, income and debts.
USDA’s eligibility site lets you check both the income limit for your county and whether an address qualifies.
Where you can use it
“Rural” is broader than it sounds. USDA’s map includes many small towns and the outer edges of growing metro areas. Most large cities are excluded, but it’s worth checking a specific address before assuming a home doesn’t qualify. The map is updated from time to time, so check again if you looked a while ago.
What it costs
USDA guaranteed loans don’t have traditional mortgage insurance. Instead there are two guarantee fees:
- An upfront fee, which can usually be added to the loan
- An annual fee, paid monthly as part of your payment
USDA sets both and can change them. Your loan officer will show the current amounts on your Loan Estimate.
USDA vs. conventional
| USDA guaranteed loan | Conventional loan | |
|---|---|---|
| Down payment | None in most cases | As little as 3% for some buyers |
| Income limit | Yes, 115% of area median | None |
| Location | Eligible rural and suburban areas | Anywhere |
| Property use | Primary residence | Primary home, second home or investment property |
| Mortgage cost | Upfront and annual guarantee fees | PMI below 20% down; can be removed |
A USDA loan may be hard to beat if you qualify on income and location and don’t have a large down payment. A conventional loan may make more sense if your income is above the limit, the home is outside USDA’s map, or you have enough saved that PMI is small or unnecessary.
Check two things first: the address and your household income. If both qualify on USDA’s site, a USDA loan is worth pricing next to your other options.
Talk to a Patriot loan officer
Every situation is different, and a short conversation is the quickest way to know what fits yours.
This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).
Sources
- USDA Rural Development, Single Family Housing Guaranteed Loan Program
- USDA Rural Development, Single Family Housing Direct Home Loans
- USDA, Income and property eligibility site