USDA loan

Also called USDA Rural Development loan

A government-backed mortgage for low- and moderate-income buyers in eligible rural and some suburban areas, usually with no down payment.

What it means

The U.S. Department of Agriculture backs home loans in areas it designates as rural, which can include many small towns and outer suburbs. The most common type is a guaranteed loan made by a private lender; the USDA also lends directly to very-low and low-income applicants.

Eligible buyers can often finance the full purchase price with no down payment. Household income must fall below a limit that varies by area and household size, and the home must be a primary residence in an eligible location. Borrowers pay an upfront guarantee fee and an annual fee, similar in purpose to mortgage insurance.

Example

Suppose a family earning below their area’s income limit buys a $220,000 home in an eligible small town. With a USDA guaranteed loan they could borrow the full price with no down payment, paying the guarantee fees instead.

How it’s used

Moderate-income buyers outside major cities
Buyers with limited down payment savings
Rural and small-town home purchases

Strengths and weaknesses

Strengths

No down payment for eligible buyers
Guarantee fees are often lower than FHA insurance costs
Can make homeownership possible in lower-cost areas

Weaknesses

Restricted to eligible locations
Income limits exclude higher earners
Primary residences only, with possible extra processing time

Good to know

Address eligibility can be checked on the USDA’s eligibility map before house hunting.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.