If you're buying a home outside the major metro areas, you might have access to one of the best-kept secrets in mortgage lending: USDA loans. Backed by the U.S. Department of Agriculture, these loans offer 100% financing—no down payment required—for homes in eligible rural and suburban areas. Combined with lower mortgage insurance than FHA and competitive interest rates, USDA can be an exceptional path to homeownership for those who qualify.
The "rural" label misleads many buyers who assume they'd need to move to a farm to qualify. In reality, 97% of U.S. land area is USDA-eligible, including many suburban communities within commuting distance of major cities. Areas you'd never think of as "rural" often qualify—the definition is based on population density, not the presence of cows.
What Makes USDA Loans Special
The zero down payment requirement is USDA's most striking feature. While VA loans also offer 100% financing, they're limited to military members. For civilian buyers, USDA is one of the only ways to buy a home with literally nothing down. On a $250,000 home, that's $7,500 to $50,000 you don't need to save.
USDA's mortgage insurance costs less than FHA's. You'll pay a 1% upfront guarantee fee (which can be rolled into the loan) and a 0.35% annual fee. Compare that to FHA's 1.75% upfront and 0.55% annual premiums—USDA saves you money both at closing and every month thereafter.
Interest rates on USDA loans are typically competitive with or lower than conventional loans, and you can finance your closing costs into the loan if the home appraises for more than the purchase price. This means you can potentially buy a home with almost nothing out of pocket.
USDA also allows seller concessions up to 6% of the purchase price, meaning the seller can pay your closing costs. Between zero down, financeable fees, and seller concessions, USDA makes homeownership accessible to buyers who thought they'd need years more of saving.
Who Qualifies for USDA?
USDA has three main eligibility requirements: the property must be in an eligible area, your income must be below certain limits, and you must meet basic credit standards.
Property Location
The property must be located in a USDA-eligible area. You can check specific addresses using the USDA's online eligibility map. Generally, areas with populations under 35,000 qualify, though there are exceptions based on how "rural in character" an area is.
Many buyers are surprised to find suburban communities within 30-45 minutes of major cities qualify. The edges of metro areas, smaller towns, and growing suburbs often meet USDA requirements. Check the map before assuming you don't qualify—you might be pleasantly surprised.
The home must be a single-family residence that will be your primary residence. No vacation homes, no investment properties, and no working farms with income-producing land. Modular homes on permanent foundations qualify; manufactured homes (mobile homes) have additional requirements.
Income Limits
USDA is designed for moderate-income households, so there are income limits based on your location and household size. Your total household income—including everyone who will live in the home, not just those on the loan—must be at or below 115% of the area median income.
These limits are higher than many expect. In many areas, a family of four can earn over $100,000 and still qualify. The limits adjust for higher-cost areas and larger households. USDA's income calculator lets you check your eligibility based on your specific situation.
Note that USDA looks at gross income, but allows certain deductions for childcare expenses, elderly household members, and other factors that can reduce your qualifying income.
Credit and Financial Requirements
While USDA doesn't set an official minimum credit score, most lenders require at least 640 for their automated underwriting systems. Borrowers with lower scores may still qualify through manual underwriting, but expect more documentation and scrutiny.
Your debt-to-income ratio should generally be 41% or below, though USDA allows flexibility with compensating factors like a strong credit history or significant savings.
You'll need to demonstrate stable employment and income—typically two years of work history, though job changes within the same field are usually fine.
The USDA Guarantee Fee
Instead of traditional mortgage insurance, USDA loans have a guarantee fee that funds the program. The structure is simple and affordable:
The upfront guarantee fee is 1% of your loan amount. On a $250,000 loan, that's $2,500. This fee can be rolled into your loan balance, keeping your out-of-pocket costs at closing minimal.
The annual fee is 0.35% of your remaining loan balance, paid monthly as part of your mortgage payment. On a $250,000 loan, that's about $73 per month initially, decreasing as you pay down the balance.
These fees are significantly lower than FHA mortgage insurance, making USDA more affordable over time for eligible borrowers.
Is USDA Right for You?
USDA makes the most sense if you're looking at homes in eligible areas and your income falls within the limits. The combination of no down payment and low mortgage insurance creates one of the most affordable paths to homeownership available.
Compare USDA to your other options: if you're a veteran, VA loans offer similar zero-down benefits without income restrictions. If you're buying in a non-eligible area, FHA or conventional loans may be your best bet.
Don't rule out USDA without checking the eligibility map. Many suburban areas qualify, and the income limits are higher than most people expect. The combination of zero down, low fees, and competitive rates makes USDA worth investigating if you're flexible on location.