# USDA loans explained

> How USDA guaranteed home loans work: no down payment, 1% upfront and 0.35% annual fees, income limits, eligible rural areas, debt ratios and how to apply.

URL: https://mail.mortgage-math-us.com/loan-types/usda-loans/  
Last reviewed: 2026-10-28 · By the MortgageMath US Editorial team

## Quick answer

A USDA guaranteed loan lets you buy a home in an eligible rural area with 0% down, as long as your household income is no more than 115% of the area median and you live in the home. Instead of mortgage insurance you pay an upfront guarantee fee of 1% of the loan, which can be financed, and an annual fee of 0.35%, paid monthly. Loans are 30-year fixed-rate only.

## Key facts

| Fact | Value | Source | As of |
|---|---|---|---|
| Down payment | 0% | [USDA Rural Development](https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program) | Oct 28, 2026 |
| Household income limit (share of area median) | 115% | [USDA Rural Development](https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program) | Oct 28, 2026 |
| Upfront guarantee fee | 1% | [USDA Rural Development](https://www.rd.usda.gov/media/file/download/usda-rd-sfh-guarantee-loan-program-101-jan-2026.pdf) | FY2026 |
| Annual fee, paid monthly | 0.35% | [USDA Rural Development](https://www.rd.usda.gov/media/file/download/usda-rd-sfh-guarantee-loan-program-101-jan-2026.pdf) | FY2026 |
| Housing payment ratio | 29% | [USDA Rural Development, HB-1-3555 Chapter 11](https://www.rd.usda.gov/files/3555-1chapter11.pdf) | Nov 25, 2025 |
| Total debt ratio | 41% | [USDA Rural Development, HB-1-3555 Chapter 11](https://www.rd.usda.gov/files/3555-1chapter11.pdf) | Nov 25, 2025 |

## How a USDA guaranteed loan works

The Single Family Housing Guaranteed Loan Program, often called Section 502 Guaranteed, is run by USDA Rural Development. Approved private lenders make the loans and set the rates; USDA guarantees most of the loan — 90% of it, according to Rural Development — so the lender can finance the full price without a down payment.

There is a separate **Direct** program in which USDA itself lends to low- and very-low-income households. This guide covers the guaranteed program, which is the one most buyers use through a regular lender.

## Who qualifies

| Requirement | USDA guaranteed rule |
|---|---|
| Down payment | 0%; closing costs can be included in the loan |
| Household income | Up to 115% of the area median income |
| Location | An eligible rural area on USDA’s property map |
| Occupancy | Your primary residence; move in within 60 days of closing |
| Credit | No USDA minimum score; you must show willingness and ability to manage debt |
| Debt ratios | 29% housing and 41% total debt, measured against repayment income |
| Loan term | 30-year fixed rate only |
| Citizenship | US citizen, US non-citizen national or qualified alien |

The income test counts the whole household, not just the people on the loan, so an adult child’s or a relative’s earnings can matter. Limits vary by county and household size; USDA’s eligibility site has an income tool for your area. Lenders often set their own credit minimums on top of USDA’s rules.

## Eligible rural areas

“Rural” is broader than it sounds. Many small towns and outer suburbs qualify, while cities and denser suburbs do not. USDA’s property eligibility map lets you enter an address or browse the map; the final decision on a property belongs to Rural Development.

The home can be detached or attached, a condo, a home in a planned unit development, modular or manufactured, but it can’t be income-producing, such as a working farm or a rental property. It must meet HUD’s property standards. There is no maximum purchase price; how much you can borrow is limited by your income, the income cap and the debt ratios. USDA guaranteed loans can also finance building a home, repairs that come with a purchase, and refinances of existing USDA loans.

## USDA fees vs mortgage insurance

USDA charges two fees. The **upfront guarantee fee** is 1% of the loan; you can pay it at closing or add it to the loan. The **annual fee** is 0.35% of the average scheduled balance for the year, split into your monthly payments. It is charged until the guarantee ends — usually when the loan is paid off or refinanced — so unlike PMI it doesn’t cancel at 20% equity. Because the rate is low, it still tends to cost less each month than FHA’s annual MIP of 0.55%.

## What a USDA payment looks like

> **Worked example: $300,000 home, smallest down payment on each loan, 30-year fixed at an example rate of 7.24%**
>
> | | USDA | FHA | Conventional |
> |---|---:|---:|---:|
> | Down payment | $0 | $10,500 | $9,000 |
> | Loan, upfront fee financed | $303,000 | $294,566 | $291,000 |
> | Principal and interest | $2,065 | $2,007 | $1,983 |
> | Monthly fee or insurance | $88 | $133 | $146 |
> | **Total with tax and insurance** | **$2,498** | **$2,485** | **$2,474** |
> 
> Tax uses the national rate of 0.89% a year and insurance Freddie Mac’s average of $4.90 per $1,000 of value; PMI is the midpoint of Freddie Mac’s typical range. To keep the USDA payment within the 29% housing ratio, the household needs repayment income of about $103,500 a year — which must also be under the area income limit.

The monthly totals land close together, so USDA’s real advantage is the cash you keep: no down payment, against $10,500 for FHA. The catch in higher-cost areas is the income window — you need enough income to afford the home but not more than the cap. Our [affordability calculator](https://mail.mortgage-math-us.com/tools/affordability-calculator/) shows how income, debts and rates combine.

## Debt ratios

USDA measures debts against **repayment income** — the income of the borrowers on the loan. Your housing payment (principal, interest, taxes, insurance, the annual fee and any HOA dues) should not exceed 29%, and all debts together 41%. Lenders can ask for a waiver above those ratios when the file is strong, for example with high validated credit scores. The [debt-to-income guide](https://mail.mortgage-math-us.com/buying/debt-to-income/) explains how the ratio is built.

## How to get a USDA loan

**How to apply for a USDA guaranteed loan**

1. **Check the address** — Look up the home or the area on USDA’s property eligibility map before you shop.
2. **Check your household income** — Use USDA’s income tool with the income of the adults in your household, not just the borrowers’.
3. **Find a USDA-approved lender** — Not every lender offers the program; compare Loan Estimates from more than one.
4. **Get pre-approved and make an offer** — The lender reviews credit, income and debts, then the home is appraised against HUD property standards.
5. **Lender and USDA review** — After the lender approves the loan, Rural Development reviews the file and issues a conditional commitment to guarantee it before closing.
6. **Close and move in** — Occupy the home within 60 days and keep it as your primary residence.

## When USDA isn’t the best fit

If the home is outside an eligible area or your household income is over the limit, look at [FHA loans](https://mail.mortgage-math-us.com/loan-types/fha-loans/) or a low-down-payment [conventional loan](https://mail.mortgage-math-us.com/loan-types/conventional-loans/). Eligible veterans should compare a [VA loan](https://mail.mortgage-math-us.com/loan-types/va-loans/), which also needs no down payment and has no location test.

## Frequently asked questions

### What is the income limit for a USDA loan?

Household income can’t exceed 115% of the median income for your area. Limits vary by county and household size, and they count the income of the adults in the household, not only the borrowers.

### How do I know if a home is in a USDA-eligible area?

Enter the address on USDA Rural Development’s property eligibility map. Many small towns and outer suburbs qualify; the final determination is made by Rural Development.

### Does a USDA loan have PMI?

No. Instead you pay an upfront guarantee fee of 1% of the loan, which can be financed, and an annual fee of 0.35% paid monthly. On the $300,000 example, the annual fee starts at about $88 a month.

### What credit score do you need for a USDA loan?

USDA sets no minimum credit score; you must show a willingness and ability to manage debt. Lenders usually set their own minimums, so ask each lender what it requires.

### Can you build a house with a USDA loan?

Yes. Guaranteed loans can finance building a new home in an eligible area, as well as repairs that come with a purchase. Ask lenders whether they offer USDA construction financing.

### Can I refinance into a USDA loan?

Only if you already have a USDA loan. The guaranteed program refinances existing USDA borrowers, including streamlined options; other owners would look at conventional or FHA refinancing.

## Sources

- [Freddie Mac Primary Mortgage Market Survey](https://www.freddiemac.com/pmms) — 30-year fixed rate, national weekly average (Week of Oct 29, 2026)
- [US Census Bureau, American Community Survey 2024 1-year](https://data.census.gov/table/ACSDT1Y2024.B25103?g=010XX00US) — Effective property tax rate (median taxes ÷ median home value) (2024 ACS 1-year)
- [Freddie Mac Research](https://www.freddiemac.com/research/insight/homeowners-insurance-costs) — Average homeowners insurance premium per $1,000 of home value (2023 data)
- [USDA Rural Development](https://www.rd.usda.gov/media/file/download/usda-rd-sfh-guarantee-loan-program-101-jan-2026.pdf) — USDA guaranteed loan upfront guarantee fee; USDA guaranteed loan annual fee; USDA guaranteed loan: borrower must move in within (FY2026)
- [USDA Rural Development, HB-1-3555 Chapter 11](https://www.rd.usda.gov/files/3555-1chapter11.pdf) — USDA guaranteed loan: housing payment ratio (share of repayment income); USDA guaranteed loan: total debt ratio (share of repayment income) (Nov 25, 2025)
- [CFPB](https://www.consumerfinance.gov/owning-a-home/prepare/figure-out-how-much-you-want-to-spend/) — Minimum FHA down payment; Minimum down payment on some conventional loans (Oct 28, 2026)
- [HUD Mortgagee Letter 2023-05](https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf) — FHA upfront mortgage insurance premium; FHA annual MIP, 30-year loan, more than 95% LTV (Feb 22, 2023)
- [Freddie Mac My Home](https://myhome.freddiemac.com/buying/breaking-down-pmi) — Typical PMI cost, low end; Typical PMI cost, high end (Oct 28, 2026)
- [USDA Rural Development](https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program) — USDA guaranteed loan down payment; USDA guaranteed loan income limit (share of area median income) (Oct 28, 2026)
- [USDA Rural Development: Single Family Housing Guaranteed Loan Program](https://www.rd.usda.gov/programs-services/single-family-housing-programs/single-family-housing-guaranteed-loan-program)
- [USDA: Property and income eligibility site](https://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp)
- [USDA HB-1-3555 Chapter 16: Guarantee fees](https://www.rd.usda.gov/files/3555-1chapter16.pdf)

_General information, not financial advice._