Mortgage Basics
What Is a USDA Loan?
A USDA loan is a mortgage backed by the U.S. Department of Agriculture for buyers purchasing homes in eligible rural and suburban areas. Like VA loans, USDA loans allow 100% financing with no down payment — one of the few zero-down options for non-military borrowers.
USDA Loan Requirements
Location Eligibility
The property must be in a USDA-designated eligible area — typically rural communities and some suburban areas outside major cities. The USDA maintains an online eligibility map. Most properties in cities and inner suburbs do not qualify.
Income Limits
Borrowers must earn no more than 115% of the area median household income. USDA loans are designed for moderate-income buyers — higher-income buyers are expected to use conventional financing.
Zero Down Payment
100% financing is available with no down payment required. Mortgage insurance is much cheaper than FHA: a 1% upfront guarantee fee and 0.35% annual fee, both lower than FHA's MIP structure.
Loan Types
The Section 502 Guaranteed Loan (through private lenders) is most common. The Section 502 Direct Loan is funded directly by USDA for very-low-income borrowers. Most buyers use the guaranteed program.
Real Estate Exam Key Points
USDA loans are backed by the Dept. of Agriculture — for rural/suburban properties
Zero down payment; 100% financing allowed
Income limits: borrowers must earn ≤115% of area median income
A guarantee fee replaces PMI (1% upfront + 0.35% annual)
Property must be in a USDA-eligible area (use USDA eligibility map)
Primary residences only — not investment properties
Two programs: Section 502 Guaranteed (private lenders) and Section 502 Direct (USDA-funded)
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