How to get a zero-down home loan from the USDA

Buying a home with no money down. Sounds impossible when people save years for a down payment, right? Wrong.

The United States Department of Agriculture offers several loan programs to promote homeownership in rural areas of the United States. Rural doesn't mean boondocks — about 97% of the land in the country qualifies, including many suburban areas, according to the USDA's eligibility map. The program also allows applicants to borrow their closing costs.

Here's how the program works:

The USDA's Section 502 Guaranteed Loan Program enables low- and middle-income households to buy and improve a primary residence by guaranteeing mortgages from lenders, according to the agency. An applicant's household income generally must be less than 115% of the median income in the county where the home is located.

For 2025, the typical range is from $103,500 to $132,000 for a household of one to four people. There are higher limits for larger families. A table showing the income limits for counties can be downloaded from the USDA Rural Development.

The residence must be a single-family home, condominium, townhouse or manufactured home. It must be modest, safe and sanitary, with utilities and access roads. There are limits on the size of the loan.

The property can't have an income-producing feature such as a farm or rental unit. It must be a primary residence — no investment properties or vacation homes will qualify. An applicant must be a U.S. citizen, non-citizen national or qualified alien, according to the USDA.

An applicant must have a credit score of at least 620 to 640, with lower scores accepted with compensating factors. Total housing costs must not exceed 29% of an applicant's income. The total of all of an applicant's debts cannot exceed 41% of income.

There are fees and mortgage insurance costs, but they can be rolled into the mortgage. There is an upfront fee of 1% of the loan amount, and a 0.35% of loan annual fee. Applicants can include closing costs of 3% to 5% of the loan value, as long as the home appraises for that amount, according to the USDA. Loan are typically 30-year mortgages.

The USDA Direct Loan program is geared toward families that are even more economically disadvantaged. Unlike the guaranteed program, loans are given by the USDA, not by a private lender. Applicants must have incomes between 50% and 80% of the county's average median income. A table for direct program limits is at USDA Rural Development.

Loans have lower interest rates — as of Dec. 1, the rate is 5%. The rate fluctuates based on current market rates at the date of the home approval or closing, whichever is lower, according to the USDA.

Applicants are also eligible for payment assistance from the USDA. This can reduce the interest rate to as low as 1%. The loan's term can be 33 years. The program will extend to 38 years for extremely low-income households.

The advantages of the programs are that they offer a zero-down payment, flexible credit requirements and competitive interest rates.

The cons: Not living in a dense, urban area may deter some homebuyers. However, with 97% of the United States eligible for a USDA loan, there are plenty of places to choose from. Many cities have nearby suburbs that also qualify. For example, there are suburban communities surrounding Washington, D.C., that have access to public transportation into the city — such as western Loudoun County in Virginia and parts of Montgomery County, Maryland — that are often considered rural areas.

There are other downsides. The USDA charges an upfront fee of 1% of the loan amount and an annual fee of 0.35%. These amounts can be rolled into the loan. Borrowers must meet income eligibility requirements (usually capped at 115% of the area median income). There are stricter property standards — the home must meet the USDA guidelines for safety and livability, and any repairs must be completed before closing. Loan processing times may be longer, and not all banks participate in the USDA program.

Before applying, check to see if your income falls within the USDA guidelines for both guaranteed and direct programs, using the tables that list income limits by county where you intend to purchase the property. Then get a free credit report to determine if you have a score of at least 620 (though the USDA may consider lower scores).

Verify that the property is within the USDA's eligibility map. If you apply to the guaranteed program, contact a lender to see if they participate. If you seek a loan through the direct program, contact the USDA, which is the lender.

You will need to go through the prequalification and preapproval steps of loan programs to see if your income meets the debt-to-income ratios to afford the home. Next, shop for a home — make sure it meets the USDA's property standards (safety, habitability). Obtain final approval from the lender (if opting for a guaranteed loan) or the USDA (for direct loans).

Here's a checklist to help you get started:

• Your income is equal to or below 115% of the median income of the county where the house is located (check USDA tables)
• Home is in a rural or suburban area (check USDA for maps)
• Must be U.S. citizen or qualified non-citizen
• Property must be primary residence
• Credit rating is 620 to 640 (though USDA will consider lower scores)

• Guaranteed loan: Mortgage is from a lender and is backed by the USDA
• Direct: USDA issues loans directly for borrowers with very low incomes

• Pay stubs
• Tax returns
• Bank statements
• Proof of income

• Contact USDA-approved lender if applying for guaranteed loan
• Get pre-qualified to determine how much you can afford
• Get preapproval to strengthen offers on homes

• Must meet USDA's standards for safety, sanitary conditions and sound construction
• Must not produce income

• Submit application to lender, if guaranteed loan
• Lender underwrites and sends to USDA for approval
• Pay USDA fee of 1% of loan amount
• Agree to pay annual mortgage insurance of 0.35%
• Close on home in 30 to 60 days

More on this topic:

• A glossary of essential terms for homebuyers
• The ins and outs of VA loans
• Buying a home in 10 steps
• How to save for a down payment