USDA Loan Requirements: Zero Down Payment Rural Home Loans

USDA loans require zero down payment, a credit score of 640+ (lower accepted with manual underwriting), household income below 115% of area median income, debt-to-income ratio under 41% and a property in a USDA-eligible rural area. These government-backed loans offer below-market interest rates and low mortgage insurance for moderate-income buyers in qualifying locations.

What Is a USDA Loan?

USDA loans are mortgages guaranteed by the U.S. Department of Agriculture’s Rural Development program. They’re designed to help moderate-income buyers purchase homes in rural and some suburban areas.

USDA loan benefits:

Zero down payment required
Below-market interest rates
Low annual guarantee fee (0.35%)
Flexible credit requirements
No loan limits (based on your income)
Closing costs can be financed or paid by seller

Two USDA loan types:

Guaranteed loans: Made by approved lenders, backed by USDA. Most common type.
Direct loans: Made directly by USDA for very low-income borrowers. Lower rates but more restrictions.

USDA Eligibility Map: Where Can You Buy?

USDA-eligible areas are more common than you might think. About 97% of U.S. land qualifies.

How to Check Eligibility

Visit the USDA eligibility map at eligibility.sc.egov.usda.gov
Enter the property address
View “Single Family Housing Guaranteed” eligibility

What Areas Qualify?

Eligible:

Rural areas with population under 35,000
Many suburbs outside major metro areas
Small towns and communities
Agricultural areas

Not eligible:

Major cities
Dense suburban areas
Areas with population over 35,000 (with some exceptions)

Surprising Eligible Locations

Many buyers are surprised to find these areas qualify:

Suburbs 30-45 minutes from major cities
Smaller cities within metro areas
Vacation and resort communities
Growing areas not yet reclassified

Jennifer Walsh assumed she couldn’t use USDA because she worked in Austin. But her preferred town, Bastrop (population 10,000), qualifies despite being just 35 miles from downtown Austin.

Important: Check eligibility before house hunting. USDA periodically removes areas as populations grow.

USDA Income Requirements

USDA has income limits—you can’t earn too much. But “too much” is often higher than people expect.

Income Limits

Income limits are 115% of area median income (AMI), adjusted for household size.

2024 example limits:

Household Size	Low-Cost Area	Moderate Area	High-Cost Area
1-4 persons	$103,500	$112,450	$150,000+
5-8 persons	$136,620	$148,435	$198,000+

Limits vary by county. Check the USDA income eligibility tool for your specific area.

What Counts as Household Income?

USDA counts all adult household income, not just borrowers on the loan.

Included:

Wages and salaries
Self-employment income
Social Security
Pension and retirement
Child support received
Disability payments
Regular overtime and bonuses
Part-time income
Income from adult children living at home

Deductions allowed:

$480 per minor child
$400 per elderly household member (62+)
$400 per disabled household member
Childcare costs for children under 12
Medical expenses over 3% of income (elderly/disabled)

Income Calculation Example

The Martinez family:

Husband’s salary: $68,000
Wife’s salary: $42,000
Adult daughter’s part-time job: $12,000
Gross household income: $122,000

Deductions:

Two minor children: $960
Adjusted income: $121,040

If their county limit is $125,000, they qualify despite appearing over the limit initially.

USDA Credit Requirements

USDA has flexible credit requirements compared to conventional loans.

Credit Score Guidelines

Score	Approval Method
640+	Automated underwriting (GUS)
620-639	May need manual underwriting
Below 620	Manual underwriting required

Manual underwriting means a human reviews your file instead of automated approval. It takes longer but allows approval with lower scores or credit issues.

Credit History Factors

USDA looks at:

Positive factors:

12 months on-time rent/mortgage payments
Stable payment history
Low credit utilization
No recent collections

Concerns:

Bankruptcy (3-year wait typically)
Foreclosure (3-year wait)
Multiple recent late payments
Judgments or tax liens

No Credit Score?

USDA allows “non-traditional credit” for borrowers without credit scores. You can qualify using:

12 months rent payment history
12 months utility payment history
Insurance payment history
Other regular payment records

USDA Debt-to-Income Requirements

USDA uses two DTI ratios to evaluate your ability to pay.

DTI Limits

Front-end ratio (housing only): 29% maximum

Includes: Principal, interest, taxes, insurance, guarantee fee

Back-end ratio (all debts): 41% maximum

Includes: Housing payment + all monthly debt payments

Compensating Factors

With compensating factors, DTI can exceed 41%:

Strong compensating factors:

Significant cash reserves
Minimal payment shock (new payment similar to current)
Excellent credit history
Stable, reliable income

Example:

Angela Washington earns $5,500/month. Her proposed housing payment is $1,450 and other debts total $600.

Front-end: $1,450 ÷ $5,500 = 26.4% ✓
Back-end: $2,050 ÷ $5,500 = 37.3% ✓

Both ratios are within limits.

USDA Property Requirements

The property must meet USDA standards and be your primary residence.

Property Types Allowed

Eligible:

Single-family homes
Townhouses
Condos (with requirements)
Manufactured homes on permanent foundation
New construction
Existing homes

Not eligible:

Investment properties
Vacation homes
Income-producing properties
Farms with significant land value
Properties with in-ground pools (some restrictions)

Minimum Property Requirements

USDA requires properties to be:

Safe:

Structurally sound
Adequate heating and cooling
Safe electrical and plumbing
No health hazards

Sanitary:

Safe drinking water
Proper sewage disposal
No environmental contamination

Functional:

Working kitchen and bath
Adequate living space
Accessible entry

Appraisal Requirements

USDA appraisals evaluate both value and condition. The appraiser checks:

Market value meets or exceeds purchase price
Property meets minimum standards
No major health or safety issues
Adequate remaining economic life

USDA Guarantee Fee

Instead of PMI, USDA charges a guarantee fee. It’s lower than most private mortgage insurance.

Fee Structure

Upfront guarantee fee: 1.0% of loan amount

Can be financed into the loan
Example: $250,000 loan = $2,500 upfront fee

Annual guarantee fee: 0.35% of remaining balance

Paid monthly with mortgage payment
Example: $250,000 loan = $875/year or $73/month

Guarantee Fee vs. PMI

Fee Type	USDA	Conventional PMI
Upfront	1.0%	Usually $0
Annual	0.35%	0.5-1.5%
Duration	Life of loan	Until 20% equity

USDA’s annual fee is significantly lower than conventional PMI, especially for borrowers with lower credit scores.

USDA Loan Limits

USDA doesn’t have a maximum loan amount like FHA. Instead, your loan is limited by:

Your income and DTI: You can borrow what you qualify for
Property value: Must appraise for purchase price or higher
Area limits: Some high-cost areas have caps

Effectively, most USDA borrowers are limited by income requirements rather than loan limits.

USDA vs. Other Loan Types

Feature	USDA	FHA	VA	Conventional
Down payment	0%	3.5%	0%	3-20%
Credit minimum	640	580	None (620 typical)	620
Income limits	Yes	No	No	No
Location limits	Yes	No	No	No
Upfront fee	1.0%	1.75%	2.15%	None
Annual fee	0.35%	0.55%	None	PMI varies
Occupancy	Primary only	Primary only	Primary only	Any

Choose USDA if:

You’re buying in an eligible rural area
Your income is within limits
You have little or no down payment
You want the lowest mortgage insurance

How to Apply for a USDA Loan

Step 1: Check Location Eligibility

Before anything else, verify your target area qualifies using the USDA eligibility map.

Step 2: Check Income Eligibility

Use the USDA income eligibility tool to confirm your household income is within limits.

Step 3: Find a USDA-Approved Lender

Not all lenders do USDA loans. Look for:

USDA experience
Competitive rates
Fast processing
Local knowledge of eligible areas

Step 4: Get Pre-Approved

Submit standard mortgage documents:

Tax returns (2 years)
W-2s (2 years)
Pay stubs (30 days)
Bank statements (2 months)
Proof of all household income

Step 5: Find and Purchase Home

Work with an agent familiar with USDA requirements. Make sure any home you consider is in an eligible area.

Step 6: USDA Approval

After lender approval, your file goes to USDA for final review. This adds 3-10 days to the typical timeline.

Total timeline: 45-60 days (longer than conventional due to USDA review).

Frequently Asked Questions

What is the minimum credit score for a USDA loan?

USDA doesn’t set a minimum, but 640+ is required for automated approval. Scores of 620-639 may qualify with manual underwriting. Below 620 requires manual underwriting with strong compensating factors.

Can I buy a home in the suburbs with a USDA loan?

Yes, many suburban areas qualify. Check the USDA eligibility map for specific addresses. Areas 20-40 miles from major cities often qualify if population is under 35,000.

How long does USDA loan approval take?

Expect 45-60 days from application to closing. After your lender approves the loan, it goes to USDA for final review, adding 3-10 business days to the timeline.

Can I have a co-borrower who doesn’t live in the home?

Generally no. All borrowers must occupy the property as their primary residence. Non-occupant co-borrowers aren’t allowed on USDA loans.

Is there a maximum purchase price for USDA loans?

No set maximum. The loan is limited by what you qualify for based on income and DTI. However, the home must appraise for the purchase price.

Can I use USDA for a fixer-upper?

Yes, through USDA’s Single Close Construction loan for new builds or the 502 Direct loan for repairs. Standard USDA loans require the home to meet minimum property standards as-is.

What happens if my area loses USDA eligibility?

If you already have a USDA loan, nothing changes. If you’re under contract and the area is removed from eligibility, you may need to switch loan types.