A USDA loan is a type of mortgage offered to rural property owners.

What is a USDA loan?

A USDA home loan is a program by the United States Department of Agriculture or USDA. It is designed to help low- to moderate-income residents in rural and suburban areas qualify for mortgages. They are a variety of mortgage loans and grants available to borrowers.

The main features of USDA home loans are no down payment and low mortgage rates.

Types of USDA Single-Family Home Loans

Single Family Direct Homeownership Loan

A Single Family Direct Homeownership Loan is also known as the Section 502 Direct Loan Program. This program helps low-income households purchase, repair, or renovate homes in rural areas.

It is designed to increase an applicant’s repayment ability by providing payment assistance for a short time. The amount of assistance is contingent on the household’s income.

Single Family Guaranteed Homeownership Loan

A Single Family Guaranteed Homeownership Loan is a mortgage that USDA guarantees for homes in eligible rural areas. A participating local lender issues the loan while the USDA provides a 90% loan note guarantee.

Single Family Housing Repair Loans and Grants

A Single Family Housing Repair Loan is also known as the Section 504 Home Repair Program. This program offers loans and grants to the elderly and homeowners with an income below 50% of the area median income. These funds can be used to repair, renovate, upgrade or to remove health and safety hazards in a home.

The maximum loan amount is $20,000 while the maximum grant amount is $7,500. You may combine both the loan and grant for a value up to $27,500.

Who is eligible for a USDA loan?

Income limits to qualify for a USDA mortgage vary by location, income, and household size. Furthermore, USDA loans can only fund owner-occupied primary residences.

In general, eligible borrowers are U.S. citizens, or have permanent residence, can afford a monthly payment that is 29% or less of your monthly income, proof of regular, dependable income for at least 24 months, and an acceptable credit report and credit score. Additional criteria apply. For more information for loan eligibility, see the USDA website for all available programs.

USDA Loan Versus FHA Loan

USDA loans and FHA loans are attractive to first-time homebuyers for their primary residence. There are a few differences key between the two types of loans.

Down Payment

USDA loans do not require a down payment. Additionally, you may finance up to 100% of the property value. On the other hand, with an FHA loan, a homebuyer must come up with a 3.5% down payment and the closing costs.


USDA has a strict “rural” location requirement. This definition also includes suburban areas. See USDA’s Rural Development map to see what areas qualify for a loan.

While the majority of America’s landscape may geographically qualify for a USDA loan, some homebuyers may desire more specific areas near their place of employment. FHA loans do not have geographical restrictions.

Income Limits

USDA has specific income limits that vary based on location. However, in general, the maximum is set at 115% of the median income for the area. On the other hand, FHA loans do not have income minimums or maximums for their standard program.

Mortgage Insurance Premiums

USDA loans have an upfront mortgage insurance premium of 1% and a monthly premium of 0.35% of the loan balance. On the other hand, FHA loans have an upfront insurance premium of 1.75% and a monthly premium of 0.85% to 1.05%, depending on the base loan amount.