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LendingTree is compensated by companies on this site and this compensation may impact how and where offers appear on this site (such as the order). LendingTree does not include all lenders, savings products, or loan options available in the marketplace.

What Are USDA Loans, and Am I Eligible for One?

Updated on:
Content was accurate at the time of publication.

USDA loans provide low- and moderate-income families with funding to purchase, renovate, build or relocate decent and safe housing in eligible rural areas. Guaranteed by the U.S. Department of Agriculture (USDA), qualified applicants can receive a loan without making a down payment or having a minimum credit score, but they must meet income requirements and use the property as their primary residence. Loans are provided as a fixed-rate mortgage with a minimum 30-year repayment term.

USDA loans aim to help low- to moderate-income borrowers purchase decent, safe and sanitary housing located in a qualified rural area. Borrowers can purchase any type of single-family home, including detached, attached, modular, manufactured, condos or planned unit developments (PUDs). They also have the option to build or renovate a home. However, it cannot be an income-producing property, so farming, raising livestock and other for-profit activities won’t be permitted.

A USDA home loan also has less stringent requirements than a traditional home loan. While borrowers will need to meet income limits, they don’t have to make a down payment or have a minimum credit score. For guaranteed loans, interest rates will vary by lender, while direct loans have a 4.75% fixed interest rate for low-income and very-low-income borrowers. Repayment terms are similar to those of a traditional mortgage — typically for 30 years — although some terms may extend up to 38 years.

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There are three primary types of USDA loans available to eligible borrowers:

  1. USDA direct loans
  2. USDA guaranteed loans
  3. USDA construction loans

USDA direct loans

Also called Single Family Housing Direct Loans, USDA direct loans help low-income and very-low-income borrowers purchase qualified rural residences. Unlike a traditional home loan, a USDA direct loan provides payment assistance in the form of a subsidy to temporarily reduce the mortgage payment. Lenders use the borrower’s adjusted family income to determine how much assistance they could receive.

The current interest rate for a USDA direct loan is 4.75%, but could be as low as 1% following payment assistance. Borrowers have up to 33 years to pay off the loan; that period could be extended to 38 years to make it more affordable for very-low-income borrowers.

USDA guaranteed loan

The Single Family Housing Guaranteed Loan Program — also known as USDA guaranteed loans — helps low- to moderate-income borrowers purchase decent, safe and sanitary homes in eligible rural areas. Unlike USDA direct loans, USDA guaranteed loans are offered by approved lenders rather than the USDA itself. The government guarantees 90% of the loan with participating lenders. That also means interest rates can vary by lender, so it’s important for borrowers to shop around for the best rates. However, borrowers won’t have to meet a minimum credit score or make a down payment. All USDA guaranteed loans are 30-year fixed-rate mortgages.

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USDA construction loans

For low- to moderate-income borrowers looking to build a home in an eligible rural area, a USDA construction loan combines a USDA guaranteed loan with a construction loan in a combination construction-to-permanent loan. That means they qualify, sign and close on one loan without having to modify it once construction is completed.


Ways you can use a USDA loan

Once approved, borrowers can use the funds for all aspects of building a home, including:

 Buying the lot
 Inspection fees
 Construction administrative fees
 Builder’s risk insurance
 Landscaping costs
 Contingency reserves
 Other qualified expenses

Lenders use the home’s appraised value to determine how much money borrowers can receive.

Comparison: USDA direct loans vs. USDA guaranteed loans

While there are some similarities between USDA direct loans and USDA guaranteed loans, there are key differences in how they’re applied.

USDA loan typeIssued byInterest ratesIncome requirementsBest for…
USDA direct loanUSDA4.75%Not specified; varies by location.Low- to very-low-income borrowers looking to purchase or improve a home.
USDA guaranteed loanUSDA-backed lendersVaries by lenderNo more than 115% of the median household income.Low- to moderate- income borrowers looking to purchase or improve a home.

Properties must be located in eligible rural designated areas. These are defined by the Congressional Research Service as areas with a population of 35,000 or less that are “rural in character” and have “a serious lack of mortgage credit for low- and moderate-income families.”

Borrowers must also meet specific requirements to qualify:

CitizenshipMust be a U.S. citizen, U.S. noncitizen national or qualified nonresident
Minimum credit score640 (recommended)
Maximum total DTI ratio41%
OccupancyMust be for a primary residence
Property typeDetached, attached, condos, modular, manufactured or planned unit developments (PUDs)

USDA loan property requirements

For properties to qualify as decent, safe and sanitary, they must meet the following minimum property features.

 Existing or new construction
 Maximum 2,000 square footage
 Structurally sound
 Must be in good repair or able to be repaired with loan funds
 Can’t be designed for income-producing activities
 Can’t have an in-ground swimming pool
 Must pass inspection by a state-licensed inspector
 Must have water and wastewater disposal systems

  Learn more about how to use the USDA Loan Map to determine if you and your prospective home qualify for a USDA loan.

USDA loans and conventional loans are similar in that both have interest rates and fixed terms, but they vary with regard to down payment and fees.

Down payment

While a USDA loan doesn’t require a down payment, other home loans do. Conventional loans typically require a 3% down payment, while FHA loans require a 3.5% down payment. Like USDA loans, VA loans typically don’t require a down payment.


For USDA direct loans and USDA guaranteed loans, private mortgage insurance (PMI) isn’t required. However, USDA guaranteed loans incur a guarantee fee both at the loan closing and for each year thereafter until paid. The initial guarantee fee is currently 1%, and the annual guarantee fee is 0.35%. The initial guarantee fee can be rolled into the total loan amount, while the annual guarantee fee is typically included in the monthly payment.

Interest rates

There are a number of factors that determine a mortgage rate, including your credit history, loan term and the economy. Interest rates for USDA direct loans are currently around 4.75%, while interest rates for USDA guaranteed loans vary by lender. The average interest rate for USDA guaranteed loans currently is around 6.60%. Meanwhile, the current interest rate for a conventional 30-year fixed mortgage is around 7.29%.

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Loan terms

The loan term for a USDA guaranteed loan is a fixed-rate, 30-year term. For a USDA direct loan, borrowers have up to 33 years to repay the loan. For very-low-income borrowers, that period may be extended up to 38 years to make it more affordable.

Getting your finances in order is the best way to improve your odds of receiving the best USDA loan rates. Here are a few ways to strengthen your financial standing.

 Work on your credit score. The higher your credit score, the better your interest rates — so take steps to boost your credit score before applying for a USDA loan.
 Make a down payment. While USDA loans don’t require a down payment, putting money down shows the lender you’re serious about repaying the loan as agreed.
 Tackle current debt. Paying off debt can reduce your debt-to-income (DTI) ratio — which lenders love — and also show that you have the funds available to pay your loan back.
 Compare lenders. It’s important to shop around with several lenders to compare interest rates, fees, closing costs and loan terms to find the best deal. First-time homebuyers may find better deals than those available from USDA loans.

 Don’t know your credit score? Get your free score on LendingTree Spring today.

If the home you want to buy doesn’t meet the rural area eligibility requirements for a USDA loan, an FHA loan could be a better choice. However, if the home does qualify, a USDA loan may be the better choice, since you won’t have to make a down payment.

Yes, loans financed or guaranteed by the USDA can be refinanced.

For USDA guaranteed loans, you’ll need to find an active lender in your state. Likewise, for a USDA single-close construction-to-permanent loan, look for a participating lender in your state. For USDA direct loans, you need to review the information specific to your state.

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