USDA Loan
A USDA loan is a mortgage backed by the U.S. Department of Agriculture through its Rural Development program. USDA loans offer zero-down-payment financing to income-eligible borrowers purchasing homes in designated rural and suburban areas.
What This Means
Program Structure
The USDA Single Family Housing Guaranteed Loan Program (Section 502) is the most widely used USDA mortgage option. Private lenders originate the loans, and USDA guarantees a portion against default. USDA also offers a direct loan program for very low-income applicants, where USDA itself acts as the lender. The guaranteed program requires no down payment, making it one of only two major zero-down mortgage programs alongside VA loans.
Eligibility Requirements
USDA loans have two primary eligibility gates: income limits and property location. Household income generally cannot exceed of the area median income (AMI) for the county where the property is located. The property must be in a USDA-eligible area, which includes many suburban communities outside major metropolitan centers. Borrowers can verify property eligibility using the USDA's online mapping tool. The home must serve as the borrower's primary residence.
Guarantee Fees
Instead of traditional mortgage insurance, USDA loans carry a guarantee fee structure. Borrowers pay an upfront guarantee fee of of the loan amount, which can be rolled into the loan balance. An annual fee of of the remaining loan balance is assessed monthly for the life of the loan. These costs are generally lower than FHA mortgage insurance premiums, making USDA financing cost-effective for eligible borrowers.