Choosing a loan · Phase 3
USDA Loans: 0% Down for Eligible Areas
The most overlooked path for first-time buyers: a government-backed loan with no down payment and fees lower than FHA's. The trade-off is eligibility — the home has to be in a qualifying area and your income under a cap. Here's how USDA works, who qualifies, and how it stacks up against FHA.
The short version. A USDA guaranteed loan lets eligible buyers purchase with 0% down in USDA-designated areas, as long as household income stays at or below 115% of the area median income. Instead of PMI — private mortgage insurance, the monthly charge most conventional loans require below 20% down, which protects the lender, not you, if you default — USDA charges a 1% upfront guarantee fee (financeable) and a 0.35% annual fee — both lower than FHA's mortgage insurance. If the address and your income qualify, it's often the cheapest way into a home.
How a USDA loan works
The most common version is the Single Family Housing Guaranteed Loan — you borrow from an ordinary lender, and USDA guarantees the loan, which is what lets the lender offer 0% down. You finance up to 100% of the purchase price on a 30-year fixed term. In place of traditional mortgage insurance, USDA charges two fees: a one-time upfront guarantee fee and a smaller annual fee.
Do you qualify? Two gates
1. Location
The home must sit in a USDA-eligible area — generally rural and many suburban-fringe locations. USDA's own property-eligibility site is the only reliable way to check: many buyers assume a town is too close to a city to qualify and are wrong, since eligibility is drawn address-by-address against USDA's current maps, not by a simple population cutoff. Always check the specific address rather than guessing from the area's name.
2. Income
Total household income can't exceed 115% of the area median income for the county — so the dollar cap depends on where you buy and your household size. USDA counts income from all adult household members, with some deductions. Check the current limit for your county before assuming you qualify.
There's no down payment requirement and no federally set minimum credit score, though most lenders look for around 640 for the lender's automated streamlined approval — a lender-overlay norm, not a USDA program minimum, per USDA Rural Development's guaranteed loan guidance. Buyers below that score can still qualify through manual underwriting, a slower, document-heavy review a human underwriter does by hand instead of the automated system. You must occupy the home as your primary residence.
The other USDA loan: Section 502 Direct
Everything above describes the Guaranteed loan — the common version, originated by an ordinary bank or mortgage lender with USDA backing. USDA also runs a second, separate program: the Section 502 Direct Loan. Instead of going through a private lender, you borrow directly from USDA Rural Development itself. It is the track low-income and very-low-income buyers are actually routed to when the Guaranteed program's income limit or a lender's overlay puts them out of reach.
Who it's for
Households at or below 80% of the area median income (low-income) or 50% (very-low-income) — a stricter cap than the Guaranteed program's 115%. USDA itself underwrites the loan and can offer payment assistance that temporarily reduces the effective interest rate, sometimes to as low as 1%, based on income.
How it differs
No private lender is involved — you apply through your local USDA Rural Development office. Homes must also meet USDA's modest-housing size and value limits for the area, which are stricter than the Guaranteed program's. Processing typically takes longer than a bank-originated Guaranteed loan.
If your income is too high for Section 502 Direct but you still fall under 115% of the area median, the Guaranteed program described above is the one you'll use. Check both income thresholds for your county on USDA's eligibility site before assuming either is out of reach.
Property rules, timing, and what happens later
How long does it take to close?
A USDA Guaranteed loan typically takes longer to close than a conventional or FHA loan — often 30–60 days versus 30–45 — because every loan file also goes through a second review at USDA's Rural Development office after your lender approves it. Build extra time into your offer's financing deadline.
Can I buy a manufactured home?
Yes, but only a new or very recently built manufactured home that is permanently affixed to a foundation on land you own or are buying with the home, and it must meet USDA's construction and site standards. Older or non-permanently-sited manufactured homes generally don't qualify.
What property condition does USDA require?
The home must be the buyer's primary residence, structurally sound, and functionally adequate — USDA requires an appraisal that also checks basic health-and-safety items (working systems, no significant defects), similar in spirit to an FHA appraisal, though the specific checklist differs.
What closing costs should I expect?
USDA doesn't set its own closing-cost schedule — you pay the same categories as any mortgage (lender fees, title, escrow, recording), commonly landing in the 2%–5% of price range used across loan types. Some closing costs can be financed into the loan or negotiated as a seller credit, subject to USDA and lender limits.
Can I refinance a USDA loan later?
Yes. USDA offers streamlined and streamlined-assist refinance options that generally don't require a new appraisal or credit review in many cases, aimed at lowering the rate on an existing USDA loan. You can also refinance out of USDA into a conventional loan once you have enough equity.
Does an adult child's income count toward the limit?
Yes — USDA counts the income of all adults expected to live in the household, not just those on the loan, when testing the 115%-of-AMI limit, though certain dependents and specific deductions can reduce the countable total. This trips up buyers who assume only the names on the mortgage matter.
Is there an acreage or land limit?
USDA doesn't set a flat acreage cap, but the property must be primarily residential in nature and typical for the area — a small hobby farm may qualify where a working farm operation would not. The property-eligibility map controls location; size and use are judged case by case by the lender and USDA.
USDA vs FHA vs conventional
| Feature | USDA | FHA | Conventional |
|---|---|---|---|
| Min down payment | 0% | 3.5% | 3% |
| Upfront fee | 1% (financeable) | 1.75% (MIP) | None |
| Annual fee / MI | 0.35% | ~0.55% (MIP) | PMI 0.5%–1.5%* |
| Insurance cancels? | Fees run with loan | Life of loan if <10% down | Cancels at 20% equity |
| Income limit | ≤115% of AMI | None | None (except HomeReady/Home Possible) |
| Location limit | Eligible areas only | None | None |
*Conventional PMI applies when under 20% down and is priced by credit score; range per Urban Institute's Housing Finance Policy Center. Sources: USDA Rural Development, HUD/FHA, Fannie Mae/Freddie Mac.
What the fees cost
On a $250,000 loan, the 1% upfront guarantee fee is about $2,500 — which you can roll into the loan rather than pay in cash — and the 0.35% annual fee is roughly $875 a year (about $73 a month) to start, declining as your balance falls. Both are lower than FHA's 1.75% upfront and ~0.55% annual mortgage insurance, which is why USDA is usually the cheaper option when you qualify for it.
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Part of Phase 3 of the First-Time Home Buyer Guide. See also FHA vs conventional and down payment assistance.
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Frequently asked questions
What are the requirements for a USDA loan in 2026?+
A USDA guaranteed loan requires that the home be in a USDA-eligible (generally rural or semi-rural) area, that your household income not exceed 115% of the area median income, and that you'll live in the home as your primary residence. There's no down payment requirement and no government-set minimum credit score, though lenders commonly look for around 640. You'll pay a 1% upfront guarantee fee and a 0.35% annual fee.
Is my area eligible for a USDA loan?+
USDA loans are limited to designated rural and many suburban-fringe areas, but the eligible map is broader than most people expect — a large share of the country's land area qualifies, including many small towns and outskirts of metros. Eligibility is by the property's address, not a general zip-code rule, so you check the specific home on USDA's property-eligibility map. If the address qualifies, the loan is on the table.
What are the USDA income limits?+
Your total household income generally can't exceed 115% of the area median income (AMI) for the county, so the dollar limit depends on where you're buying and your household size. USDA counts income from all adult household members, not just the borrowers, though certain deductions apply. Because the limits are set per area and updated periodically, check the current figure for your county on USDA's site before assuming you qualify.
USDA vs FHA — which is better?+
If you qualify for USDA, it's often cheaper: it requires 0% down versus FHA's 3.5%, and its fees (1% upfront, 0.35% annual) are lower than FHA's mortgage insurance (1.75% upfront, ~0.55% annual). The catch is eligibility — USDA restricts you to eligible areas and caps your income at 115% of AMI, while FHA has no location or income limit. So USDA usually wins on cost when you fit its box; FHA is the fallback when you don't.
What credit score do you need for a USDA loan?+
USDA doesn't set a federal minimum credit score, but most lenders look for around 640, which allows streamlined automated underwriting. Below that, some lenders will still consider you with manual underwriting and documentation, but it's harder. As with any loan, a higher score improves your rate, so it's worth checking and improving your credit before applying.
Does a USDA loan really require zero down payment?+
Yes. Along with VA loans, USDA is one of the only mortgage programs that allows 0% down — you can finance 100% of the purchase price. You still owe closing costs, but those can sometimes be covered by seller concessions, lender credits, or gift funds, and the 1% upfront guarantee fee can be rolled into the loan rather than paid in cash. That makes USDA one of the lowest-cash-to-close paths for eligible buyers.
How much are the USDA guarantee fees?+
USDA charges two fees in place of traditional mortgage insurance: a 1% upfront guarantee fee (which can be financed into the loan) and a 0.35% annual fee charged on the loan balance and billed monthly. On a $250,000 loan that's about $2,500 upfront and roughly $875 a year (about $73 a month) to start, declining as the balance falls. Both are lower than FHA's equivalent mortgage-insurance charges.
Methodology
USDA program terms — 0% down, the 1% upfront guarantee fee, the 0.35% annual fee, the 115%-of-AMI income limit, and property eligibility — are from USDA Rural Development's Single Family Housing Guaranteed Loan Program. Section 502 Direct terms (80%/50%-of-AMI thresholds, USDA as direct lender, payment assistance) are from USDA Rural Development's Single Family Housing Direct Home Loans program page. FHA comparison figures (3.5% down, 1.75% upfront and ~0.55% annual MIP) are from HUD/FHA. PMI range is from Urban Institute's Housing Finance Policy Center. Lender credit-score norms are from USDA Rural Development guidance and industry lender practice, not a USDA-set minimum. Income limits and the eligible-area map are set by USDA per location and updated periodically, so confirm the current figures for your county and address. The fee example is simple arithmetic on a $250,000 loan. This guide is educational, not lending advice.
Sources
- USDA Rural Development — Single Family Housing Guaranteed Loan Program — accessed 2026-07-29
- USDA Rural Development — Single Family Housing Direct Home Loans (Section 502 Direct) — accessed 2026-08-05
- USDA — Property & income eligibility site — accessed 2026-07-29
- HUD / FHA — FHA loan requirements (for comparison) — accessed 2026-07-29
- Consumer Financial Protection Bureau — Loan options — accessed 2026-07-29
- Urban Institute, Housing Finance Policy Center — PMI cost data — accessed 2026-07-29
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