A USDA loan is guaranteed by the U.S. Department of Agriculture and designed to promote homeownership in eligible rural and suburban areas. Despite the name, "rural" under USDA's map includes a lot of suburban and small-town areas outside major metros — it's worth checking the USDA eligibility map before assuming your target area doesn't qualify.
Who it's best for
Buyers purchasing in an eligible area whose household income falls at or below 115% of the area median income, and who don't have enough saved for a down payment. It's a strong alternative to FHA for buyers in eligible locations, since the ongoing costs are typically lower.
Why people choose it
- Zero down payment — similar to VA, but without a military service requirement.
- Lower ongoing insurance costs than FHA. Upfront guarantee fee of 1% of the loan, plus an annual fee of 0.35% of the outstanding balance — both meaningfully cheaper than FHA's MIP structure.
- Competitive rates, often on par with conventional despite requiring no down payment.
Property type restrictions
USDA loans are for primary residences only — no investment properties, no second homes. The home also has to meet USDA's modest-housing standards; it's not designed to finance luxury properties even in an eligible area.
USDA eligibility maps and income limits are updated periodically and vary by county. Confirm current eligibility for a specific address with a licensed loan officer or the USDA's own eligibility tool.