USDA loans are mortgages backed the U.S. Department of Agriculture
as part of its USDA Rural Development Guaranteed Housing Loan program.

USDA loans are available to home buyers with low-to-average income for their area, offer 100% financing with reduced mortgage insurance premiums, and feature below-market mortgage rates when compared to a typical conventional loan.

USDA eligibility is based on the buyer and the property. First, the home must be in a qualified “rural” area, which USDA typically defines as a population of less than 20,000. Second, the buyer must meet USDA income caps. To be eligible, you can’t make more than 15% above the local median salary. You also have to use the home as your primary residence (no vacation homes or investment properties allowed).

Borrowers also have to meet USDA’s “ability to repay” standards, including:

  • Steady job and income, proven by tax returns 
  • FICO credit score of at least 640 (though this can vary by lender) 
  • Debt-to-income ratio of 41% or less in most cases

Compared to other loan programs, USDA mortgage rates are usually the lowest available. 

USDA rates are typically only matched by the VA loan, which is exclusively for veterans. These two programs — USDA and VA — can offer 100% financing because their government guarantee protects lenders against loss.