6 Things You Should Know About the USDA Loan

Backed by the U.S. Department of Agriculture, USDA loans are specifically designed to make homeownership more accessible and affordable for people living in eligible rural and suburban areas. 

They’re government-backed loans, and they come with several unique benefits that can make buying a home all-the-more easy (especially if you're not taking the Conventional, FHA, or VA loan route. 

Let’s walk through six key things to know about USDA loans to help you decide if one might be right for you: 

1. USDA Loans Aren’t “Just for Farmers”  

In spite of the name, USDA loans aren’t limited to farmhouses or agricultural land. The “rural” designation is broader than many people think. In fact, many suburban neighborhoods, small towns, and bedroom communities just outside city centers fall into USDA-eligible zones. 

You won’t be able to use a USDA loan to purchase a commercial farm or any property that produces income through agriculture. But a regular single-family home on acreage that isn’t used for commercial purposes? That’s typically fair game. 

To confirm whether a property qualifies, the USDA offers an easy-to-use property eligibility tool on its website. Enter the address, and it will show you whether the home falls within an eligible zone. 

2. There’s No Down Payment Required  

One of the most attractive features of a USDA loan is that it offers 100% financing. That means qualified borrowers don’t need to make a down payment, which is a huge advantage for buyers who may have stable income but limited savings. 

If you do want to put money down, you’re allowed to. And if family members or friends want to contribute, USDA guidelines permit the use of gift funds to cover closing costsFees and expenses that must be paid to close on your home, like property taxes, homeowners insurance, title search fees, appraisal fees, etc.closing costsFees and expenses that must be paid to close on your home, like property taxes, homeowners insurance, title search fees, appraisal fees, etc. or an optional down payment. There are also down payment assistance programsA special financing program that helps make homeownership a reality for homebuyers who otherwise may not have the funds for a down payment.down payment assistance programsA special financing program that helps make homeownership a reality for homebuyers who otherwise may not have the funds for a down payment. in many areas that can be layered with a USDA loan to make homeownership even more affordable. 

While you won’t need a down payment, you’ll still need to cover closing costs, which typically range from 2% to 6% of the purchase price. In some cases, you can negotiate with the seller to cover part of these costs, or they can be rolled into the loan if the home appraises for more than the purchase price. 

3. Mortgage Insurance is a Requirement 

Since USDA loans allow for no down payment, they include mortgage insuranceInsurance that protects your lender if you can’t make mortgage payments.mortgage insuranceInsurance that protects your lender if you can’t make mortgage payments. to protect lenders. Instead of private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%.private mortgage insurance (PMI)An insurance policy that protects the lender in case you default on your loan. Mortgage insurance is required for FHA loans and for Conventional loans when you put down less than 20%. like you’d see with a Conventional loan, USDA uses its own “guarantee fee” structure. 

Expert Tip

This includes a one-time upfront fee of 2.75% of the loan amount, which can be financed into the mortgage, and an annual fee equal to 0.50% of your remaining loan balance. This annual fee is broken into monthly payments and added to your mortgage bill.

While it’s still a recurring cost, USDA mortgage insurance is often lower than what you’d pay with a Conventional loan if you didn’t put 20% down, making it an affordable trade-off for 100% financing. 

4. You Have Different Property Options 

Although USDA loans are tied to location eligibility, they’re surprisingly flexible when it comes to the type of home you can purchase. In other words, you’re not limited to just existing single-family homes. 

USDA loans can be used for newly built homes, eligible modular or manufactured homes (if they meet HUD and USDA standards), condos within approved developments, and homes in planned unit developments (PUDs).  

Expert Tip

However, the loan must be used for a primary residence. That means you can’t use it to purchase an investment property, vacation home, or short-term rental. 

5. USDA Loans Have Income Limits 

USDA loans are intended for moderate- to low-income households, which means your household income must fall below certain limits. These income caps are based on the area median income (AMI) and are adjusted for your county and household size. 

So, depending on where you’re buying and how many people live in your home, you might still qualify even if your income seems higher than expected. 

It’s important to know that the USDA considers the total income of everyone living in the household, not just the borrower or co-borrowerAn additional borrower whose income, assets, and credit history are used to help the primary borrower qualify for a loan.co-borrowerAn additional borrower whose income, assets, and credit history are used to help the primary borrower qualify for a loan.. That means if you live with adult children, elderly relatives, or other working adults, their income may be counted, even if they aren’t on the loan. 

To see if you meet the limit in your area, the USDA has an income eligibility calculator available online. 

6. You Can Refinance a USDA Loan 

If you already have a USDA loan, refinancing into another USDA loan may help reduce your monthly payment, add a borrower, or simplify your mortgage. The USDA offers several refinancing paths, each with its own benefits and requirements. 

Streamlined-Assist Refinance 

The most popular refinance option for USDA borrowers is the Streamlined-Assist refinance. This program is specifically designed to make the process easy and cost-effective. 

Benefits include: 

• No appraisal required 

• No debt-to-income (DTI) calculation 

• Closing costs can be rolled into the new loan 

• No credit score minimum (though good payment history is required) 

You must already have a USDA loan, and your household income must still fall within USDA guidelines. You’ll also need to show 12 consecutive months of on-time mortgage payments. If that’s the case, this refinance option can save you time and money (and may even allow you to skip a mortgage payment during the transition). 

However, borrowers cannot remove anyone from the loan using this option (though adding someone is allowed). 

Streamlined and Non-Streamlined Refinance 

These two options offer a bit more flexibility than the Streamlined-Assist program. You can: 

• Add or remove borrowers (great for marriage, divorce, or co-signer updates) 

• Refinance without needing to show a payment reduction (though it helps) 

• Choose an appraisal-based refinance (required for Non-Streamlined) 

Both require a good 6-month payment history with no more than one late payment, and late payments can’t exceed 30 days. 

Keep in mind: If the appraised value of your home isn’t high enough to cover your current loan balance, guarantee fee, and closing costs, you may need to bring cash to the table for these refinance options. 

The More You Know 

USDA loans offer an incredible opportunity for eligible buyers in rural and even some suburban areas to purchase a home with no down payment, competitive rates, and flexible property options. They're especially ideal for first-time homebuyers or those who may not qualify for other loan types due to credit history or savings. 

If you're looking for an affordable path to homeownership (and your income and location qualify) it’s worth exploring USDA loans as a smart, accessible option. So, with that being said, let’s get started!