You Don’t Have to be a Farmer to get a Home Loan from the USDA

If you’re searching for a good deal on a mortgage, you might want to look into little-known home loan programs run by the US Department of Agriculture. A USDA loan can be just as good, or even better than an FHA or VA loan. However, you must live in an area considered “rural” by the Department of Agriculture and meet income limits that vary by county and size of your family. The mortgage insurance that USDA requires is similar to fees charged by VA but significantly less than you would pay for FHA mortgage insurance or private mortgage insurance required for conventional loans with a down payment lower than 20%.

USDA loans also have a number of great features. They are zero down payment loans, the same as VA and less than FHA’s 3.5%. You can use USDA loans for repairs, rehabilitation, refinancing and even a pro-rated share of real estate taxes. They can be used to buy vacant lots, condominiums, and even manufactured (mobile) homes.

rural town perfect for usda home loansrural town perfect for usda home loans

USDA Single-Family Home Loans

The USDA offers three programs designed to provide rural residents decent, safe, and sanitary housing in eligible areas.

Single-Family Housing Guaranteed Loan Program.  This is USDA’s most popular program. It features zero down payments and enables banks, mortgage companies, credit unions, and other qualified lenders to provide zero down payment financing by guaranteeing 90% of the loan, which greatly reduces lenders’ risk. Here is a national list of approved lenders.

The annual USDA mortgage insurance premium covers just 0.35% of the loan amount—and is 40% lower than the mortgage insurance premium charged for a comparable FHA-backed loan. It requires a 1% up-front fee and a 0.35% annual fee based on the remaining balance of the principal.

These loans can be used for:

  • Purchasing a new or existing home to be used as a permanent residence;
  • Pay costs associated with buying a home, such as closing costs, home inspection and other customary expenses associated with a home purchase;
  • Repairs and rehabilitation associated with the purchase of an existing home, such as mold remediation or termite damage;
  • Refinancing an existing mortgage or eligible loans;
  • Special design features or equipment to accommodate a household member who has a physical disability;
  • Connection fees and installment costs for utilities such as water, sewer, electricity, and gas;
  • A pro-rated share of real estate taxes due on closing;
  • Purchasing and installing features to improve energy efficiency such as insulation, double-paned glass, and solar panels;
  • Fixed broadband service, as long as the equipment is conveyed with the sale;
  • Purchase of a lot and site preparation costs, including grading, foundation plantings, seeding or sod installation, trees, sidewalks, fences and driveways; and
  • Site preparation costs, including grading, foundation plantings, seeding or sod installation, trees, sidewalks, fences, and drives.

Single Family Direct Loan Program. This is a “payment assistance” program that helps low-income applicants get decent, safe and sanitary housing to increase their ability to repay. It is a type of subsidy that reduces mortgage payments for a short period determined by a family’s adjusted income and is available only to families that cannot obtain a mortgage from other sources. It’s a “direct” program, which means USDA makes loans directly to buyers rather than through an approved lender. Borrowers must repay all or a portion of the loan before selling the home.


  • Properties must be 2,000 square feet or less and be worth less than the applicable local loan limit as set by USDA.
  • Borrowers must be unable to obtain a loan from other resources on terms and conditions that they can reasonably be expected to meet.
  • Borrowers must demonstrate a willingness and ability to repay debt.

Single-Family Housing Repair Loans & Grants. These help very-low-income homeowners to repair, improve or modernize their homes. Loans may be used to repair, improve or modernize homes or remove health and safety hazards and grants must be used to remove health and safety hazards.


  • Borrowers must be unable to obtain affordable credit elsewhere and have a family income below 50 percent of the area median income.
  • The maximum loan under this program is $20,000; the maximum grant is $7,500.

Eligibility: Location and Income

Generally, USDA Home Loans are available only to citizens or permanent residents who live in counties or portions of counties where the total population is 35,000 or less. In 2013, the average household income for direct borrowers was $28,600 while guaranteed loan recipients earned an average of $54,200.

Rural areas are adjusted to reflect the latest data from the Census Bureau. Income limits are based on a national target of $75,650 for households with 1-4 family members and up to $153,400 in certain high-cost areas.

To find out if you are eligible for either the direct or guaranteed loan program, go here and enter your address. Click on “property eligibility,” “income eligibility,” or “income limits” in the menu across the top of the screen. Go here to find out if you qualify based on family size, income, and location.

For current information on programs in your state, go here.

Steve Cook is the editor of the Down Payment Report and provides public relations consulting services to leading companies and non-profits in residential real estate and housing finance. He has been vice president of public affairs for the National Association of Realtors, senior vice president of Edelman Worldwide and press secretary to two members of Congress.