USDA loan: no down payment in rural areas

The USDA guaranteed loan is one of the few ways to buy a home with no down paymentdown paymentThe down payment is the part of the home's price you pay out of your own pocket when you buy; the loan covers the rest. In U.S. Spanish it is also called enganche, cuota inicial or entrada. Each loan type has its own minimum: FHA requires at least 3.5% of the value, VA and USDA loans may require none, and conventional loans ask for more if you want to avoid private mortgage insurance. A larger down payment lowers the loan, the monthly payment and the total interest; many state programs help families put it together.See the full definitionClose. It is for low- and moderate-income families buying in areas USDA, the Department of Agriculture, considers rural. Using the program’s regulation, this guide explains which homes and areas qualify, how your household’s income is counted, what the fees cost, who can apply and how the process works. For the term itself, see the USDA loanUSDA loanA USDA loan is a mortgage from the Rural Housing Service, part of the U.S. Department of Agriculture (USDA). It is meant for low- and moderate-income families buying a home in an area the USDA considers rural, and it can be offered with no down payment. There are two paths: the USDA guarantees a loan made by a private lender, or it lends directly to very-low-income families. To qualify, your income must be within the limit for your area and the home must be in an eligible area, which you can check on the USDA's map.See the full definitionClose glossary entry.

Minimum down payment, if the home and your household qualify

0%⁶

Upfront guarantee fee, which can be added to the loan

1%⁹

Annual fee, charged in your monthly payment

0.35%⁹

Maximum term, always at a fixed rate

30 years⁷

What the USDA guaranteed loan is

According to the CFPB, USDA runs a program similar to FHA’s and VA’s, designed for low- and moderate-income borrowers in rural areas. It can be a good option if you have little savings: it requires no down payment and is usually cheaper than an FHA loan. In exchange, you pay an upfront fee and ongoing premiums to USDA.¹

USDA does not make the loan. A lenderlenderThe lender is the financial institution that lends you the money for your mortgage. The mortgage is the agreement that gives the lender the right to take your home if you do not repay what it lent you. After closing, it is common for another company, the loan servicer, to collect your payments and keep track of the loan; it may be the same company that lent you the money or a different one. On the Loan Estimate, the lender's name appears on the first page, and the last page lists it as "Lender" with its NMLS or license number.See the full definitionClose approved by the program does, and USDA guarantees it.¹⁴ The regulation requires the loan to be used to buy or build a new or existing home you will live in. It can also cover repairs at purchase, essential equipment sold with the home, energy-saving improvements and reasonable costs of getting the loan: title, transfer taxes and recording fees, the appraisal, the inspection, homebuyer education and the guarantee fee.⁴

No down payment: how much you can borrow

The loan can reach the lower of two amounts: the market value from the appraisalhome appraisalAn appraisal is a written document that gives a professional appraiser's opinion of how much a property is worth. The lender orders it before approving the mortgage, because the home is the loan's collateral and the lender does not want to lend more than it is worth. If the appraisal comes in below the price you agreed, the bank bases the loan on the lower value and you will have to cover the difference, renegotiate the price or walk away if your contract allows it. An appraisal is not an inspection: it measures value, not the home's condition.See the full definitionClose plus the upfront guarantee fee, or the purchase price plus allowable acquisition costs.⁶ That is why the minimum down payment is 0%.

That does not mean you put in nothing. If the seller or someone else pays some of your costs, that amount cannot be added to the loan.⁴ And the seller or another interested third party cannot contribute more than 6% of the sales price toward your financing, closing costsclosing costsClosing costs are all of the costs you pay on closing day on top of the down payment: lender fees, the appraisal, the credit report, title insurance, the closing agent's fees, any transfer taxes your state or county charges and the first deposits into the escrow account. The lender must itemize them on the Loan Estimate within days of your application and confirm them on the Closing Disclosure before you sign. Some can be paid by the seller, and several state programs help cover them.See the full definitionClose, escrow, furniture or other giveaways, unless the agency provides otherwise.⁵

Example with real numbers

A typical home with USDA, no money down

With the typical US home value and the current fiscal year's fees.

Home price (typical US value)

$332,700

Minimum down payment (0%)

Nothing, if the price is not above the appraisal

Upfront guarantee fee

1% of the loan, which can be added to the loan

Annual fee

0.35% of the year's average balance, spread over your payments

This is an example with national numbers.⁶⁹⁸ Your closing costs, rate and payment appear on your Loan Estimate; the calculator gives you an idea with your own numbers.

Run it with your numbersMortgage calculator

USDA fees: upfront and annual

The cost of a USDA loan is in its two fees, which work like the mortgage insurance on other loans. For fiscal year 2027, which runs from October 1, 2026 to September 30, 2027, the upfront guarantee fee is 1% and the annual fee is 0.35%, on purchases and refinances.⁹

The lender pays both and can pass them on to the borrower. The regulation sets caps: the upfront fee cannot exceed 3.5% of the loan, and the annual fee cannot exceed 0.5% of the year’s average scheduled balance, for the life of the loan. USDA can change the current fee from time to time.⁸

According to the CFPB, you pay that insurance at closing and in your monthly payment. You can roll the upfront part into the loan instead of paying it out of pocket, but then the loan amount and the overall cost go up.²

Always a fixed rate. The interest rate is fixed for the life of the loan, and you negotiate it with the lender. The maximum term is 30 years. Adjustable-rateadjustable-rate mortgage (ARM)An adjustable-rate mortgage (ARM) is a loan whose interest rate can change, usually in step with a market index. It often starts with a fixed rate for an initial period (for example, the first few years) and then adjusts at set intervals, so your payment can go up or down. The contract sets caps on how much the rate can rise at each adjustment and in total. Before accepting one, check on the Loan Estimate how high your payment could reach and whether you could afford it.See the full definitionClose, balloon and prepayment-penaltyprepayment penaltyA prepayment penalty is a fee some lenders charge if you pay off all or part of your mortgage early. Not every mortgage has one; if yours does, you agreed to it at closing. According to the CFPB, it usually applies if you pay off the whole balance within a certain number of years, for example when you sell or refinance, and sometimes if you pay a large amount at once; it does not normally apply to small extra principal payments. Many states limit these penalties. The Loan Estimate says whether the loan has one, and the details may be in the note or an addendum.See the full definitionClose loans are not allowed.⁷

USDA and FHA, side by side

Rural area and income limit

USDA guaranteed

• Minimum down payment of 0%.⁶
• Upfront fee of 1% and annual fee of 0.35%.⁹
• Your household's income cannot exceed the moderate income limit.¹⁰
• Fixed rate only, and no penalty for paying early.⁷

Insured by FHA

FHA

• Down payment from 3.5%.¹⁸
• Always carries mortgage insurance.¹⁸
• Accepts lower scores than most conventional loans.¹⁸
• The CFPB says USDA is usually cheaper than FHA.¹

If you qualify for both, get a Loan Estimate for each and compare the total cost.¹⁷

Where: rural areas and the home

USDA only guarantees loans in areas Rural Development designates as rural. The definition of “rural area” comes from federal law, section 520 of the Housing Act of 1949.³ If an area stops being rural, existing commitments are honored, and requests with a complete purchase contract before the change may be approved.¹²

The practical way to find out is USDA’s eligibility site: it has a section to check whether an address is in an eligible area and another to assess whether your household might qualify. USDA notes it only gives an idea of how likely you are to qualify, and that you apply through one of its approved lenders.¹⁴

The lot. It must be a typical size for the area, with direct access from an all-weather street or road, and with adequate water and wastewater service. It cannot include land or buildings used to produce income, or be a property used mainly for agriculture or a business.¹² The loan also cannot be used to buy an existing manufactured home, with exceptions.⁵

The home. It must be modest, decent, safe and sanitary, and you must live in it: USDA does not guarantee investment properties or temporary housing.¹⁰ An existing home must be structurally sound, work properly, be in good repair (or be repaired with the loan) and have safe electrical, heating, plumbing, water and wastewater systems.¹³ The home inspection guide helps you check it yourself.

Your household’s income: how it is counted

Here is the rule that surprises people most. To decide whether you qualify, USDA looks at the income of your whole household, not just the people signing. The “household” is everyone who routinely lives in the home, except live-in aides and foster children or adults.³ Annual income is the income of all household members, whether or not they sign the loan, and the lender verifies each adult’s income for the last 2 years.¹¹

That income, after some deductions, cannot exceed your area’s “moderate income” limit.¹⁰ The limit is the greatest of 115% of U.S. median family income and two other figures that depend on your state, your area and your household size.³

Not everything counts. Left out, among other things, are the earnings of children under 18 who are not applicants or spouses, gifts and other temporary income, and the earned income tax credit. And deductions are subtracted, such as one for each child under 18 and reasonable care costs for children 12 or under that let someone in the home work.¹¹

To repay the loan, on the other hand, the stable income of the people who sign counts: the lender reviews at least the last 2 years and whether it will continue for at least 3.¹¹ Your house payment, with taxes, insurance and the annual fee, should not exceed 29% of that income, and your total debts 41%. These can be exceeded with compensating factors, such as a score of 680 or higher, a payment close to your current rent, savings or steady employment. And if you fall short, other eligible household members can join the application.¹⁰ The debt-to-income ratio guide explains this math.

Credit and who can apply

Credit. The regulation requires a verifiable credit history showing you pay your debts, with an acceptable credit scorecredit scoreA credit score is a number that predicts how likely you are to pay back a loan on time. It is computed from the information in your credit report: whether you pay on time, how much you owe relative to your limits, how long you have used credit and how many new accounts you opened. FICO is one brand of score; VantageScore is another, and each lender decides which one it uses. A higher score usually brings a lower interest rate and more loan options; each program publishes the minimum it accepts. You can check your report for free and dispute errors.See the full definitionClose. On a manually underwritten loan, a foreclosure or bankruptcy in the last 36 months, or a rent or mortgage payment 30 or more days late in the last 12 months, calls for a closer review. If you have no history, other methods can be used, such as a non-traditional mortgage credit reportnontraditional mortgage credit report (NTMCR)A nontraditional mortgage credit report (NTMCR) is, according to HUD, a type of credit report designed to show the history of a borrower who does not have the kinds of accounts that appear on a traditional report. On an FHA loan, if you have no credit score, the lender must get one from a credit reporting company or build your history itself. The reporting company verifies that each provider exists and actually extended credit to you. The report shows, among other things, each account's twelve-month history and monthly payment, and it may not use phrases such as “satisfactory” in place of data.See the full definitionClose or several independent references.¹⁰ The nontraditional credit for a mortgage guide explains which payments count.

If you already own a home. You can qualify only if you meet several conditions: your current home no longer meets your family’s needs, you will live in the new one and you lack the resources to buy it without the guarantee, among others.¹⁰

Citizenship and status. You must provide evidence that you are a U.S. citizen, a non-citizen national or a “qualified alienqualified alien"Qualified alien" is a term in a federal law, 8 U.S.C. 1641, used to decide who may apply for or receive certain federal public benefits. The law defines it with a list of categories. They include lawful permanent residents, people granted asylum, refugees, certain people paroled into the country for at least one year, people whose deportation is being withheld, Cuban and Haitian entrants and, in certain cases, people subjected to battery or extreme cruelty. The same law has exceptions and other conditions, so the definition alone does not say whether a person can receive a benefit.See the full definitionClose.”¹⁰ The regulation takes that definition from a 1996 federal law (8 U.S.C. §1641).³ Under that law it includes, among others, lawful permanent residents, people granted asylum, refugees, people paroled into the country for at least 1 year, people whose deportation is being withheld, Cuban and Haitian entrants, and people lawfully residing under a Compact of Free Association.¹⁵

How to apply for a USDA loan, step by step

From the address to the keys

1. 1. Check the address and your household income

   Before you shop in earnest

   USDA's eligibility site tells you whether the area is eligible and whether your household might qualify.¹⁴

2. 2. Gather paperwork for the whole household

   Before you apply

   The lender verifies the income of each adult in the household for the last 2 years.¹¹

   Try it with your numbersDocument checklist

3. 3. Find a USDA-approved lender

   Before you make an offer

   To apply for a guaranteed loan, USDA sends you to its approved lenders.¹⁴

4. 4. Compare Loan Estimates

   No later than 3 business days after you apply

   Everyone uses the same form: compare the rate, the fees and the closing costs.¹⁷

   Try it with your numbersCompare loans

5. 5. USDA's system reviews your application

   During approval

   The lender uses USDA's automated system; if it does not accept you, your file is reviewed by hand.⁸

6. 6. Appraisal and conditional commitment

   The appraisal is good for 120 days; the commitment, 90

   USDA issues the conditional commitment once the loan, household and site requirements are met.⁸

7. 7. You close and move in

   The lender requests the guarantee within 30 days

   The home must be your principal residence.¹⁰

   Try it with your numbersClosing costs

If the program’s funds run low during the year, USDA gives priority to first-time homebuyers and veterans.⁸ Also, at the start of each fiscal year the program runs out of funds for about a week; during that time USDA keeps issuing commitments “subject to the availability” of funds.⁹ Ask your lender how that could affect your closing date.

If this is you

You live with several relatives who work

Their income counts toward the limit even if they do not sign the loan.¹¹ Do the math with everyone before you apply.

You are buying for the first time

Your lender may require a homebuyer course,¹⁰ and if funds run short, you get priority.⁸ See the homebuyer education courses guide.

You have no credit history

Other methods can be used, such as a non-traditional credit report or independent references.¹⁰

You have an ITIN or a temporary status

USDA requires being a citizen, a non-citizen national or a qualified alien.¹⁰ The ITIN mortgage guide explains other options.

A HUD-approved housing counselorHUD-approved housing counselorA HUD-approved housing counselor works at an agency HUD has approved to provide housing counseling: independent, expert advice customized to your situation about buying a home, renting, a missed mortgage payment, a foreclosure or credit problems. The agencies usually charge little or nothing; many serve in Spanish and offer the homebuyer education course several assistance programs require. They are not lenders or real estate agents and sell you nothing. Your county page lists the official agencies with phone numbers.See the full definitionClose can go over whether a USDA offer fits your goals, often for free or at low cost.¹⁹

Common mistakes

• Mistake: Assuming your area is not rural.

  Instead: Check the address on USDA's eligibility site.¹⁴

• Mistake: Counting only the income of the people signing.

  Instead: For the limit, the income of everyone who lives in the home counts.¹¹

• Mistake: Thinking no down payment means no costs.

  Instead: There is an upfront fee of 1%, an annual fee of 0.35% and closing costs.⁹

• Mistake: Asking the seller for more than allowed.

  Instead: The seller or another third party cannot contribute more than 6% of the price, unless the agency provides otherwise.⁵

• Mistake: Wanting to use the loan for farmland or a business.

  Instead: USDA does not guarantee land or buildings used to produce income.¹²

• Mistake: Hoping for a lower adjustable rate.

  Instead: The USDA guaranteed loan is always a fixed rate.⁷

What to do this week

1. Check the address you are interested in on USDA’s eligibility site.¹⁴
2. List everyone who lives in your home and what each adult earns.¹¹
3. Work out your payment, with the annual fee, in the mortgage calculator.⁹
4. Check your debt-to-income ratio with the DTI guide.¹⁰
5. Get Loan Estimates from several USDA-approved lenders and compare them with an FHA loan.¹⁷
6. If you want to go over your options with someone, a HUD-approved housing counselor gives independent advice, often free or at low cost.¹⁹