Programme
USDA Loan
No down payment in an eligible area, in exchange for two limits and a fee that never cancels.
The Single Family Housing Guaranteed Loan Program is run by USDA Rural Development, and it is the only route to a zero-down purchase that is open to a borrower with no military service. The price of that is two eligibility tests that have nothing to do with your credit — where the house is, and what the whole household earns — plus an annual guarantee fee that is charged for as long as the loan lives. It is cheaper than FHA insurance and it is more permanent than conventional PMI, and both halves of that sentence matter.
- No down payment
- 1% up-front guarantee fee, financeable
- 0.35% annual fee
- Property and household income tests
Floor four
What it gives you
The down payment is genuinely zero
The loan can be written for 100% of the appraised value, and the up-front guarantee fee can be financed on top of it. For a household with income but without savings, that is the whole point of the programme.
The annual fee is the lowest of the government routes
0.35% of the average scheduled balance a year, against 0.50% to 0.55% for a typical FHA loan. Over a thirty-year term the difference compounds into a meaningful number, even though the USDA fee lasts longer.
Closing costs may be financed where the appraisal supports it
If the property appraises above the purchase price, the difference can be used toward eligible closing costs — one of the few ways to close a purchase with almost nothing out of pocket.
"Rural" is broader than it sounds
The eligible-area map includes a great many small towns and the outer edges of metropolitan areas, not only farmland. Checking a specific address on the map takes a minute and regularly surprises people.
Floor three
What this programme costs you
Every programme buys you something by charging you something else. This is the half a brochure leaves out, and it is the half that decides whether the programme is right for you.
- Trade-off 01
The annual fee never cancels
0.35% of the balance is charged for the life of the loan (7 CFR 3555.107(g)). There is no equity threshold that ends it, no eleven-year rule, no request you can make. Conventional PMI comes off at 80% of the original value; this does not come off at all. The only way out is to refinance into a different kind of loan, and that is a new loan at whatever rate exists on that day.
- Trade-off 02
The income test counts people who cannot help you qualify
This is the trap. Adjusted annual income is measured on the whole household — every adult who will live in the house — not just the borrowers. An adult child's wages or a parent's pension can push the household over the county limit and disqualify the loan, even though that income cannot be used to help you qualify for the payment. The two tests run in opposite directions and it catches multigenerational households repeatedly.
- Trade-off 03
Where you may buy is decided for you, and the map changes
The property must sit inside an area Rural Development has designated as eligible. The designations are redrawn as census data updates, so an address that qualified for a neighbour two years ago may not qualify now. It also constrains resale: your buyer cannot use the same programme if the boundary has moved.
- Trade-off 04
Owner-occupied only, and no investment escape hatch
The guaranteed loan is for a principal residence. You cannot buy a rental with it, you cannot buy a second home with it, and income-producing outbuildings or acreage disproportionate to the dwelling can put the property outside the programme entirely.
Floor two
The published rules, and where they come from
These are rules, not prices. This site publishes no rates, so what follows is the part of the programme that is written down somewhere a third party can check.
| Rule | What it says | Source |
|---|---|---|
| Down payment | None required. The loan may be written up to 100% of the appraised value. | 7 CFR 3555.104 |
| Up-front guarantee fee | 1% of the loan amount, payable at closing or financed into the loan. | 7 CFR 3555.107(g) |
| Annual fee | 0.35% of the average scheduled unpaid principal balance, charged monthly for the LIFE OF THE LOAN. There is no cancellation threshold. | 7 CFR 3555.107(g) |
| Property eligibility | The address must be within an area Rural Development has designated as eligible. Designations are revised as census data changes. | 7 CFR 3555.201 |
| Household income limit | Adjusted annual income of the entire household — every adult who will occupy the home, whether or not they are on the loan — must be at or below the limit for the county, generally 115% of area median income. | 7 CFR 3555.152(a) |
| Occupancy | Owner-occupied principal residence only. No investment property, no second homes. | 7 CFR 3555.151(e) |
| Property character | The dwelling must be modest in size, design and cost for the area, and income-producing land or buildings disproportionate to the home can make a property ineligible. | 7 CFR 3555.208 |
Floor one
Who it fits
The usual guidelines. Every one of them is a starting point that an underwriter reads against the whole file, so treat a line you miss as a conversation rather than a closed door.
- The property must be in an area Rural Development has designated as eligible
- Adjusted household income at or below the limit for that county, generally 115% of area median income
- The property must be your principal residence
- A credit and repayment history the lender and the automated system will accept
- Income and employment that can be documented
- The dwelling must be modest in size, design and cost for the area, and must be structurally sound
Ground floor
How it goes, top to bottom
Check the address and the income limit before anything else
Both are pass-or-fail tests that have nothing to do with your credit. USDA publishes an eligibility map and a county income table; five minutes here saves a wasted month.
Count the whole household's income, not just yours
Every adult who will occupy the home counts toward the limit. Work this out honestly at the start, because it is verified later and it is the most common reason a USDA file dies late.
Pre-approval
The lender underwrites the file against USDA's guidelines and its own. The loan is guaranteed by Rural Development but it is made and underwritten by the lender.
Appraisal and the Rural Development review
The appraiser values the property and confirms it meets the programme's condition standards. The file then goes to Rural Development for its conditional commitment, which is a step that exists on no other programme and takes its own time.
Closing
The up-front guarantee fee is paid or financed, and the annual fee begins. Read the Closing Disclosure against the Loan Estimate before you sign.
USDA against FHA, on cost and on who may use it
| Feature | USDA guaranteed | FHA |
|---|---|---|
| Down payment | None | 3.5% at a credit score of 580 or above |
| Up-front fee | 1% guarantee fee | 1.75% mortgage insurance premium |
| Annual fee or premium | 0.35% of the balance | 0.50% to 0.55% on a typical 30-year loan at or below the tier threshold |
| Does it ever end? | No — it runs for the life of the loan | Not above 90% LTV at origination; 11 years at or below |
| Where you may buy | Only inside a Rural Development eligible area | Anywhere, within the county FHA loan limit |
| Income | Whole-household limit, generally 115% of area median income | No income cap |
| Occupancy | Principal residence only | Principal residence only |
This table scrolls sideways on a narrow screen.
Questions this raises
Does the USDA annual fee ever cancel?
No. Unlike conventional PMI, which the Homeowners Protection Act requires to be cancelled at 78% of the original value, the USDA annual guarantee fee is charged on the average scheduled balance for as long as the loan exists. It is smaller than FHA's premium, but it is permanent in the same way FHA's is on a low-down-payment loan. Refinancing into a conventional loan is the way out, and that decision belongs to a later year and a different rate environment.
How rural does the property have to be?
Less rural than the name suggests. Rural Development designates eligible areas and publishes a map you can search by address. A great many small towns and the outer suburbs of mid-sized metropolitan areas are inside it. What matters is the specific address, not your impression of the area, and the boundaries are redrawn as census data updates.
Whose income counts toward the limit?
Everyone who will live in the house. The programme measures adjusted household income, which includes adults who are not borrowers and whose income cannot be used to qualify you for the payment. That asymmetry is the single most common reason a USDA application fails after it has already been underwritten, so it is worth calculating carefully before you make an offer.
Can I use a USDA loan to buy a rental?
No. The guaranteed loan is available only for a principal residence you will occupy. A property with income-producing acreage or outbuildings that are large relative to the dwelling can also be ruled ineligible on its own, quite apart from your intentions.
Put your own numbers through it
What would the payment actually be? The monthly payment page prints the rule it followed beside the answer, and the address bar carries your inputs so the link you send is the answer you saw.
Or read every programme side by side.