The U.S. Department of Agriculture (USDA) runs a home loan program through its Rural Development office that helps people with moderate incomes buy homes in eligible areas. The loans are made by approved private lenders, and the USDA guarantees a portion, which allows lenders to offer favorable terms, including financing of the full purchase price for qualified borrowers. Despite the “rural” label, many suburban areas and small towns near larger cities are eligible. Bethany Sanchez (NMLS #2425491) helps buyers in Phoenix, Scottsdale, Gilbert, Mesa, Chandler, Tempe, Paradise Valley, and Maricopa County find out whether USDA is an option.
Quick answer: A USDA loan is for owner-occupied homes in eligible areas, for households whose income falls within program limits. It can offer 100 percent financing, with an upfront guarantee fee and an annual fee. This is educational and not a commitment to lend.
Who USDA loans tend to fit
A USDA loan may be right for you if:
- You want to buy a primary residence in an eligible area
- Your household income falls within the program’s limit for your area and size
- You have limited savings for a down payment
- You have a reliable payment history and steady income
- You are comfortable with a modest, standard single-family home rather than a property with substantial income-producing features
Basic requirements
| Requirement | General USDA approach |
|---|---|
| Property location | Must be in a USDA-designated eligible area |
| Household income | Must not exceed the limit for the county and household size |
| Occupancy | Primary residence only |
| Citizenship | U.S. citizen, permanent resident or qualified non-citizen |
| Credit | Solid credit and a dependable payment history are expected |
| Debt ratios | Standard guidelines apply, with some flexibility for strong files |
| Property type | Modest, safe, sanitary single-family home, including some condos and new construction |
| Down payment | Not required |
Understanding the income limit
The USDA income limit is based on household income, not only the income of the borrowers on the loan. If other adults live in the home and earn income, their income is counted toward the limit, with certain exceptions, such as income from dependents who are full-time students. The limit varies by county and household size. Lenders also verify that your debt-to-income ratio fits guidelines, so being under the limit is necessary but not sufficient.
Understanding property eligibility
The USDA publishes a map and an address lookup tool that show which areas qualify. Because eligibility depends on the property’s location, it can differ even between neighbors. Check the address before you get attached to a house. The program is intended for homes that are modest and not primarily used for business or farming. Some features, such as large acreage, income-producing portions or an in-ground pool, may make a property ineligible.
Costs and fees
USDA loans avoid private mortgage insurance. Instead, the program charges:
- An upfront guarantee fee, which can usually be financed into the loan
- An annual fee, collected monthly as part of your payment
You will also pay typical closing costs such as appraisal, title, escrow, recording and prepaid taxes and insurance. Sellers can contribute toward closing costs within program limits, and gift funds and some assistance programs may be used. If the appraisal exceeds the purchase price, the program may allow financing of some closing costs, subject to limits.
The appraisal and inspection
A USDA appraisal estimates market value and confirms that the home meets minimum property standards. A professional home inspection is still highly recommended, because the appraisal is not a substitute for a home inspection. Repairs required by the appraiser must be completed before closing. Rural properties may involve well, septic and road considerations, so ask your agent about local requirements.
USDA loan advantages and trade-offs
Advantages
- No down payment required
- Competitive terms for qualified borrowers
- Fees that can be financed
- Seller contributions allowed
- Gift funds and some assistance programs allowed
Trade-offs
- Income and location limits
- Guarantee fees upfront and annually
- Primary residence only
- Property standards that may limit some homes
- Processing can take longer when documentation is complex
USDA direct loans
The USDA also operates direct loan and grant programs through Rural Development offices for households with lower incomes. These are separate from the guaranteed loan program described here, and they are made by the USDA, not by a private lender. Check the USDA Rural Development website for details, or ask us if you are unsure which path applies to you.
How to get started
- Check eligibility. Look up your target area and estimate your household income against the limit.
- Talk to us. We review your income, credit and goals and compare USDA with other programs such as FHA or conventional loans.
- Get pre-approved. See the Get Pre-Approved page for the documents we need.
- Shop in eligible areas. Tell your agent you are using a USDA loan so they can focus the search and write the offer correctly.
- Close. We manage the process through underwriting, the USDA’s review and closing.
Questions? Call (760) 713-3814. For more options, see the loan programs overview and the first-time homebuyer guide. Sunset Home Lending is a private company and is not affiliated with or endorsed by the USDA.
Frequently asked questions
Do USDA loans require a down payment?
No, USDA guaranteed loans offer 100% financing for eligible borrowers and properties, which means no down payment is required. You still pay closing costs unless the seller or another source covers them, and a larger down payment is allowed if you want it.
Is a USDA loan only for farms?
No. USDA home loans are for ordinary single-family homes in eligible rural and suburban areas, and the eligible area is often much larger than people expect. The loan cannot be used to buy a working farm, but the property can be a typical residential home.
What are the USDA income limits?
Household income generally must fall within a limit based on the area and the number of people in your household. The limit applies to the total income of everyone who lives in the home, even if they are not on the loan. You can check current limits on the USDA eligibility site.
How do I know if a property is eligible?
Use the property eligibility tool on the USDA eligibility site and enter the address. Eligibility depends on the location, and the map can change over time, so confirm eligibility before you make an offer.
What credit score do I need for a USDA loan?
USDA guidelines favor borrowers with solid credit and a reliable payment history, and many lenders look for scores around the 640 range or higher for streamlined processing. Borrowers with lower scores may still qualify with additional documentation. Ask us to review your file.
Are USDA loans only for first-time buyers?
No. Repeat buyers can use USDA loans too, as long as they meet the income, credit and property requirements and plan to live in the home as a primary residence.