USDA Loans – The Right Loan For You?

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What is a USDA loan?

A USDA home loan is a 100% financing (zero down payment) mortgage offered by the U.S Department of Agriculture to home buyers in less densely populated areas of the country. Eligibility is determined by home location, income level, and other requirements.

The USDA loan program

The USDA home loan program is one of the best-kept secrets in the home buying market today.

This zero-down, 100% financing home loan is sponsored by the United States Department of Agriculture to promote homeownership in less-dense communities across the U.S.

For this reason, it’s often known as the USDA Rural Development Loan (RD Loan) or Rural Housing Loan. The program is part of the larger Rural Housing Service under USDA's umbrella of programs.

But don’t let the name fool you. It’s not just for properties that are far-removed from civilization.

In fact, a full 97% of U.S. land mass is eligible for USDA financing, representing 109 million people — about one-third of the U.S. population. It's very likely that a property near you qualifies.

How USDA-issued home loans work

Going one step further in helping prospective homebuyers, the USDA issues mortgages to applicants deemed to have the greatest need. That means an individual or family that:

  • Is without “decent, safe and sanitary housing”
  • Is unable to secure a home loan from traditional sources
  • Has an adjusted income at or below the low-income limit for the area where they live

The USDA usually issues direct loans for homes of 2,000 square feet or less, with a market value below the area loan limit. Again, that’s a moving target depending on where you live. Home loans can be as high as $500,000 or more in pricey real estate markets like California and Hawaii, and as low as just over $100,000 in parts of rural America.

Eligible home locations

Metropolitan areas are generally excluded from USDA programs, but pockets of opportunity can exist in suburbs. Rural locations are always eligible.

Next steps

To apply for a USDA-backed loan, talk to a participating lender. If you’re interested in a USDA direct mortgage or home improvement loan or grant, contact your state’s USDA office.

A program sponsored by the USDA might seem to be targeted to farmers and ranchers, but your occupation has nothing to do with the qualification process. Eligibility is simply a matter of income and location. And no, you don’t need to know sorghum from a soybean.