Real Estate

Understanding the United States Department of Agriculture (USDA) Loans

Understanding the United States Department of Agriculture (USDA) Loans

A USDA mortgage loan is a no-money-down mortgage made available to low- and moderate-income home buyers in rural areas who do not satisfy the standards for conventional mortgages. USDA is part of a national program established by the United States Department of Agriculture to assist in the creation of loans for first-time homeowners.

A USDA loan has several advantages, including zero down payment and lenient credit standards, while some pitfalls include the house being located in a USDA-approved location and that applicants do not surpass contribution limits.

What kind of property can I get a USDA loan for?

Homes acquired using USDA must be in rural regions that can be qualified as an open country or any town, village, city, or site, including the immediately adjacent highly-populated area, that is not part of or related to an urban area.

Although the demographic limitations vary based on the property’s attributes, the population limit for any USDA loan is a total of 20,000 people. And if you’re buying in a community with a smaller population, which is a part of a metropolitan statistical area, you won’t be eligible for a USDA loan. Another clause is that it has to be in an area where there is a dearth of mortgage credit for lower and moderate-income families.

Requirements for USDA loan

The USDA mortgage loan like any other mortgage plan has standards that have to be met before accessing the loan. And provided your home meets the following standards, then you are qualified for a USDA loan.

You must be a U.S. citizen or a permanent resident with a Green Card with the ability to demonstrate creditworthiness of minimum 640 scores, you must meet income requirements, you must be in good standing with all federal programs, you should be able to provide proof of on-time payments for bills like rent or car finance as well as the property being located in an eligible area.

The current cost of taking out a USDA loan

USDA loans feature two service charges: an initial guarantee charge and an annual payment that are unique to the program. This current year’s advance guarantee charge is 1% of the loan amount. So rather than paying this charge separately, it is frequently integrated into the mortgage.

While the annual cost is 0.35 percent of the loan amount this fiscal year. For example, a $100,000 mortgage would have a $1,000 down payment and an annual payment of $350 throughout the loan’s expiry.

Both of these costs are passed on to the borrower by the lender because these fees maintain United States Department of Agriculture (USDA) loans unsubsidized, which implies that any program losses are covered by these fees rather than taxpayer funds.

Other possible USDA mortgage fees charged include origination fees, loan application fees, title insurance, processing or underwriting fees, credit report and notary fees, and the appraisal discount points which are optional.

Income expectation for USDA loan qualification

USDA mortgage loans are majorly targeted at low- and moderate-income homebuyers and as a result, candidates who are eligible for the loan are expected to earn up to a certain stipulated amount, which varies by metropolitan area and family structure. This salary cap is significantly greater in higher-priced places.

Across most qualifying regions, a one- to four-person typical household annual income restriction is $90,300, and a five- to eight-person household’s annual income limit is $119,200. The USDA established yearly limitations for each region that are at or below 115 percent of the average family income.

To get accurate information, you must check your family size and your location, and if you fit in the maximum income limit.

Advantages and Disadvantages

A USDA home loan has less severe credit score requirements and does not demand an initial deposit. Unlike FHA loans, there is no formal loan cap and there is a terrific option for budget-conscious homebuyers who are open to moving around. The disadvantages usually revolve around limitations, such as those on where you can buy or how much your family can earn before you can qualify.


The advantages range from no down payment, the credit score requirements are relaxed, the seller may pay the closing costs. It is available for both purchasing and refinancing and these loans frequently feature low, fixed interest rates.


There are strict guidelines regarding the location of the property, the obligation to utilize the home as a principal residence, and the income criteria.

The Author

Ajisebutu Doyinsola

Doyinsola Ajisebutu is a journalist and prolific writer who takes a special interest in Finance, Insurance, and the Tech world.