What Is USDA Loan: Reviews, Types, Eligibility, Application Process & Other Details!

A USDA Loan is a home loan that is issued or guaranteed by the United States Department of Agriculture. The USDA Mortgage Loans gives aspiring rural homeowners a shot at homeownership with zero down payments mortgage for qualified borrowers.

People who are living in rural areas and unable to qualify for conventional mortgage loans, then they can qualify for either a USDA-guaranteed loan or a USDA direct Loan. This Home loan program is designed primarily to help lower-income people who are living in unhealthy or unsafe rural conditions obtain a mortgage loan that has modern utilities and adequate space.

The USDA Loan program is run by the Rural Development Office of the US Department of Agriculture and offers various options depending on the borrowers’ circumstances and what they need to help with. The borrowers must use a USDA Mortgage Loan to purchase a home in the designated area that covers various rules suburban locations.

What Is A USDA Loan?

A USDA Loan is a Mortgage either made or Guaranteed by the United States Department of Agriculture’s rural housing agency to help households with very low to moderate income purchase safe and affordable homes in rural areas. A USDA Mortgage Loan is a competitively-priced mortgage option that helps to make buying a home more affordable for low-income people who are living in designated rural areas.

The USDA Mortgage Loan is backed by the U.S. Department of Agriculture in a similar way The VA Loans are backed by the Department of Veterans Affairs for eligible people such as veterans and their families. USDA Mortgage Loans are no-down payment mortgages for low- and moderate-income homeowners in largely rural areas. The USDA Mortgage Loans are part of the National Program created by the US Department of Agriculture to help create loans for first-time homebuyers or people who don’t meet the requirements of Conventional Mortgage Loans.

How Do USDA Loans Work?

Eligible borrowers can get the USDA Mortgage Loan if they are living in rural areas as determined by USDA. However, the USDA considers a particular “town, village, city or place” to be rural and therefore eligible for the USDA Loan if it has a population below 10,000 people. However, some metropolitan areas can be included too if between 10,000 and 20,000 people live there and people with moderate-to-low incomes have an overall harder time getting Mortgages.

The USDA provides three different types of home loans and the most popular USDA Mortgage Loan is the Section 502 guaranteed loan which allows homeowners to finance up to 90% of their home’s purchase price. These Mortgage Loans are issued by USDA-approved lenders and insured by the agency similar to how many conventional mortgages are backed by Fannie Mae and Freddie Mac. In addition to the USDA-guaranteed loan program, the department also offers two direct-issue programs including the Section 502 direct home loan and the Section 504 home improvement loan. These Mortgage Loans can be used by borrowers with lower incomes to finance the larger portions of their home purchase or improvement.


What Are The Types Of USDA Mortgage Loans?

There are three types Of USDA Mortgage Loans Programs:

  • USDA Guaranteed Loans: The USDA Guaranteed Home Loan Program or Section 502 Guaranteed allows approved Mortgage Lenders to provide 30-year fixed-rate loans to borrowers in USDA-eligible locations. This Mortgage Loan is called a Guaranteed Loan because the USDA guarantees 90% of the loan to the lenders in the event the borrowers default on the mortgage.
  • USDA Direct Loans: The USDA Direct Loans or Section 502 Direct offer low-rate home loans to people in rural areas in need of adequate housing. The borrowers can apply for USDA Direct Loans through the USDA’s Rural Development Service Centers, unlike USDA guaranteed loans. These Mortgage Loans are only available to households with very low income. There is also a limit on how much they borrow depending on the country where the home is located.
  • USDA Home Improvement Loans and Grants: The USDA Home Improvement Loans and Grants also known as Section 504 Home Repair Mortgage Loans. These Loans are similar to the direct program in that they cater to low-income people. These Mortgage Loans provide loans only up to $40,000 and only to help improve or repair a home. The USDA Home Improvement Loans and Grants also provide grants to low-income homeowners aged 62 or older to help remove risk at home.

What Are the USDA Loans Eligibility Requirements

The USDA Mortgage Loans are only available for certain borrowers in certain Areas. The Income Limits of USDA Mortgage Loans can vary by program and by area. For USDA Guaranteed Loan, the Borrowers income can not exceed 115% of the median income for their Area. However, the income limits for direct-issue loans are much lower as low as 50% of the median income in certain areas.

Here are some specific USDA Home Loan requirements includes:

  • The USDA Mortgage Loans must be used for the primary residence.
  • The Property needs to be in a Rural Area, which is defined as having less than 35,000 Residents.
  • The eligible borrowers need to meet down payment requirements to Apply for USDA Loans.
  • The eligible borrowers need not have a minimum credit score to qualify for USDA Loans.
  • The eligible borrowers need not have incomes that exceed pre-set limits.
  • The eligible borrowers need to have a debt-to-income ratio of 41% or less.
Minimum down payment $0
Minimum credit score No guideline minimum but most lenders require 640
Maximum total debt ratio 41% Exceptions possible to 44% with 680 credit scores and cash reserves or two-year job stability
Appraised value Must confirm home is in USDA-approved rural area
Occupancy Must live in the home as the primary residence
Guarantee fee 1% upfront 0.35% annual

How To Apply For The USDA Mortgage Loans?

The process of Applying for USDA Mortgage Loans is very similar to conventional mortgage loans. However, some extra steps are required to get a USDA Loan to confirm eligibility, as well as some potentially unique documentation items, such as like well tests, that are unique to rural property.

  1. Property Eligibility: These Mortgage Loans are only available in the eligible areas that have less than 35,000 residents. So before Applying for the USDA Mortgage Loans, it is a good idea to check the property’s eligibility using the USDA’s eligibility map.
  2. Income Eligibility: The ability to qualify for a mortgage loan depends upon the household income relative to the median income. The USDA offers some tools to help you check your income eligibility based on your areas.
  3. Application Process: The Process of Applying for the USDA Mortgage Loans varies by lenders. If the borrowers apply for the direct-issue loan, then they will need to go through the USDA’s application process.
  4. Documentation: Whether you are applying directly with the USDA or through a Private Lender, the borrowers will need to provide certain documents such as:
  • State photo ID
  • Social Security card
  • A month’s worth of your most recent pay stubs (if employed full-time)
  • Tax returns for the past two years (if self-employed or retired)
  • Copy of earnest money check
  • Personal financial statement
  • Homeowners insurance policy quote
  • Termite inspector’s report

What Are the USDA Loans Fees?

The USDA Mortgage Loans come with two fees:

  • Upfront Guarantee Fees: The Upfront Guarantee Fees this fiscal year is 1 percent of the Loan amount. For example, for a $100,000 loan, the Upfront Guarantee Fee is $1,000.
  • Annual Fees: The annual fee is 0.35% of the Loan amount. For Example, for A $100,000 mortgage, this fee would have a $1,000 one-time payment and a $350 per year ongoing payment for the life of the loan.

USDA Loans Reviews

The Major Benefits of the USDA Loans is that there is no Down Payment required. This can be a great program for homeowners on a budget who are flexible about where they are living. Here below are some of the Pros and Cons of USDA Mortgage Loans:


  • There is No Down Payment Required for USDA Loans.
  • There is no formal loan limit for Guaranteed Mortgage Loans.
  • The sellers can pay the closing costs.
  • The USDA Loans are available for both purchasing property and refinancing.


  • There the limited income requirements.
  • The strict guidelines around where the property is located.
  • Must use Home for the primary residence.

Frequently Asked Questions (FAQs)

Question 1: Do USDA Loans require the Private Mortgage Insurance (PMI)?

Answer: The USDA Loans don’t require Private Mortgage Insurance (PMI), because it is only for the borrowers of Conventional Loans who put down less than 20%. The USDA Loans charge two fees instead of charging PMI such as the upfront guarantee fee and an annual fee.

Question 2: Is it hard to get a USDA Mortgage Loan?

Answer: Yes, with low-income limits and restrictions on where people buy a home, the USDA loan is more difficult to qualify than the other types of Mortgage Loans.

Question 3: Is the USDA Loan limited for the first-time Homebuyers?

Answer: No, USDA Mortgage Loan Programs are not limited to first-time homebuyers but are limited to primary residences.

Question 4: How long does it take to get approved for the USDA Loans?

Answer: The processing time of USDA Loans, can vary depending on fund availability, completeness of the Application, and demand in the area which the eligible borrowers are interested in buying.

Question 5: Can I refinance my USDA Mortgage Loan?

Answer: Yes, borrowers can refinance USDA Mortgage Loans under three specific refinance offerings such as streamlined, streamlined, and streamlined-assist.

Question 6: Can I use the USDA Mortgage Loans for a vacation home, business, or rental property?

Answer: No, USDA Mortgage Loans can only be used for the primary residence, not the second homes or the investment property.

The Bottom Lines

The USDA Mortgage Loans help make purchasing a home more affordable for those who are living in qualifying rural Areas. The borrowers have to pay closing costs and when they qualify they will likely get lower interest rates and won’t be required to make a Down Payment. The borrowers can do a preliminary check on the USDA eligibility site to see if the address of the home they are interested in and their income qualify, however is always best to let an expert help them understand their mortgage options.

I'm Josh Anderson, A Freelance Content Writer, Author, And Blogger having a Couple of years of experience In Real Estate and Mortgage Industry. I started This Blog in 2023, and It is the Mortgage and Real Estate Based Blog in United States of America. I specialize in creating top notch contents based on Real Estate and Mortgage to help individuals for Purchasing their Dream Property throughout the America.

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