USDA Home Loan: Meaning, Types, How to Get One

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May 1, 2025
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Reviewed by Doretha Clemon

What Is a USDA Home Loan?

A USDA home loan is a mortgage offered by the United States Department of Agriculture to low-income residents. These are usually people who live in rural areas and wouldn’t typically qualify for conventional mortgages. The loans are intended to help people in rural areas buy homes with greater space and modern amenities. Residents may be eligible for two types of loans: the guaranteed USDA loan or the direct USDA loan.

To qualify for either, residents must ensure they fall under the minimum income thresholds listed on the USDA home loan website and live in an eligible rural area.

Key Takeaways

The Section 502 Guaranteed Rural Housing Program offers financial assistance to residents with a stable, yet low or modest income.
The program offers residents two types of loans: a guaranteed USDA loan or a direct USDA loan to access moderately priced properties.
These loans can be used to purchase or renovate housing.

The 2 Types of USDA Home Loans

There are two different types of home loans you may qualify for with the USDA: a guaranteed USDA loan and a direct USDA Loan.

Section 502 Guaranteed USDA Loan

Through a guaranteed USDA loan, lenders can offer 100% financed loans, also known as no-money-down loans, to eligible low- and moderate-income borrowers. With these loans, borrowers can buy an existing home, build a new one, relocate to a new property, or use the funds for home renovations.

	Guaranteed USDA Loan
Who can qualify?	Low- and moderate-income borrowers who are not eligible for conventional loans with no private mortgage insurance (PMI). Borrowers must be U.S. citizens or meet noncitizen requirements, and can not be suspended or debarred from participating in federal programs.
Loan issuer	USDA, but lender will be a private savings and loan institution, bank, or mortgage company
Interest rate	Determined by lender
Loan term	30 years
Down payment	None, but applicants with assets higher than the minimum limits may be required to put down a portion of those assets.
Income limits	Up to 115% of the area median income (AMI)
Credit requirements	No official minimum credit score, but lenders may require at least 640. They may also want to see proof that clients have a stable and dependable income and the ability to repay the loan.
Fees	Upfront guarantee fee (1%) and annual guarantee fee (0.35%)
Application process	Apply through USDA-approved lenders
Mortgage insurance	None

Section 502 Direct USDA Loan

A direct USDA loan offers mortgage financing to help low- and very-low-income applicants buy, improve, or repair a rural home. The home must be their primary residence. The Single Family Housing Direct Loan Program also offers financial assistance in the form of a temporary subsidy to help borrowers repay their loans.

	Direct USDA Loan
Who can qualify?	Low- and very-low-income borrowers who can’t obtain conventional home loans and mortgages. They must meet citizen and noncitizen requirements. Applicants must also agree to live in the home as their primary residence. Properties must also not have a market value higher than the area loan limit.
Loan issuer	USDA
Interest rate	5.00%, but with payment assistance, it can be as low as 1%
Loan term	33 years, but can be 38 for very low-income applicants who can’t afford the 33-year term
Down payment	None, but applicants with assets higher than the minimum limits may be required to put down a portion of those assets.
Income limits	Up to 80% of the area median income (AMI)
Credit requirements	Typically, minimum 620 credit score (may vary by borrower)
Fees	None, but borrowers may have to pay back the subsidy if they transfer the property title or stop occupying the home.
Application process	Apply through USDA Rural Development Office
Mortgage insurance	None

How to Get a USDA Home Loan

You may need to take several steps before securing a USDA home loan. Let’s break down both the eligibility requirements and how to apply.

Eligibility Requirements

To qualify for a USDA home loan, you typically need to meet the criteria below.

Income: Your household income must not exceed 115% of the median income for your area for a USDA guaranteed loan, or 80% for a USDA direct loan.
Location: The home must be located in a USDA-eligible rural or suburban area. Use the USDA eligibility map to check if a property qualifies.
Residency: You must be a U.S. citizen, a non-citizen national, or a permanent resident.
Primary residence: The property must be your primary residence, not an investment or vacation home.
Credit score: Most lenders typically require a minimum credit score of about 620 to 640, but some may consider lower scores with a more thorough review.
Debt-to-income ratio: Your total monthly debts, including the new mortgage, should generally not exceed 41% of your gross monthly income. However, applicants with a lower debt-to-income ratio (DTI) can still apply for a loan.
Property standards: The home must meet minimum safety and livability standards set by HUD and the USDA.

Step-by-Step: How to Get a USDA Loan

To get a USDA loan, here are the general steps:

Check your eligibility: Before applying for a USDA loan, review the income limits for your area and household size on the USDA website. Then, using the USDA eligibility map, ensure your property qualifies and is located in a USDA-eligible area.
Find a USDA-approved lender: Since not all lenders offer USDA loans, choose one that is USDA-approved for guaranteed loans. You can also contact your local USDA office for information on Direct Loans.
Get pre-qualified by your lender: You’ll have to provide basic financial and credit information to your lender for an initial review. The lender will check your credit and review your income and debts.
Gather documentation and share with your lender: You’ll want to gather proof of income (such as pay stubs and tax returns), employment history, assets, identification, and residential history to show your lender.
Apply for pre-approval for your loan before looking at properties: The next step is to submit all your documentation to get pre-approved for your loan. A pre-approval strengthens your position when making an offer.
Find and make an offer on a home: Search for a USDA-eligible property and submit a purchase offer once you have been pre-approved.
Start the home appraisal and underwriting process: The lender orders a USDA appraisal to confirm the home meets program standards. During this time, the lender may also complete underwriting, where it reviews all financial details and property eligibility.
Follow through with the loan approval and closing: Once your loan is approved, you can sign the closing documents and finalize the purchase. The process typically takes 30 to 45 days from pre-qualification to closing.

The Bottom Line

If you live in a rural area and have previously given up on owning a home, consider checking if you qualify for a USDA home loan. Through the USDA, low- to moderate-income households may be eligible for loans, especially if they can’t access conventional financing. Whether you’re looking at a direct or guaranteed USDA loan, know that for both, you won’t have to put down a down payment.