USDA Loan Requirements 2023: Zero-Down Homebuying
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October 12, 2022

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Buy a home with zero down using USDA

Many first-time homebuyers are discouraged when they get out their calculators to see how much money upfront they need to buy a home.

Even at 5% down, a $250,000 home requires $12,500 upfront and another $5,000-$7,000 or so in closing costs.

Fortunately, there’s a little-known homebuying program that requires zero down payment. It’s sponsored by the United States Department of Agriculture (USDA) that is meant to promote homeownership in less-densely-populated areas.

The “USDA home loan” as it is most commonly known, could mean the difference between saving up a down payment for years or buying a home now. Knowing USDA loan requirements 2023 could give you a major advantage over other homebuyers.

Check your USDA eligibility.

What’s in this article?

What is a USDA loan?
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USDA eligible areas
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USDA loan income limits
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USDA down payment and closing costs
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USDA loan limits
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USDA mortgage rates
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Property requirements
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USDA pros and cons
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Credit score minimum
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USDA mortgage insurance
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The USDA process
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USDA vs FHA vs Conventional
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Start your USDA loan
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What is a USDA loan?

The USDA loan is a zero-down mortgage program that is meant to spur homeownership and in rural and suburban areas. This is why it’s also called the Rural Development, or RD, loan.

You may have also heard the name “Section 502 Guaranteed Loan Program,” which indicates the portion of the USDA rulebook that details the program. The “Guaranteed” moniker means that USDA backs private lenders so that they are able to issue the loans. You go to banks and mortgage companies to get a USDA loan, not the government itself. 

But what really matters is what the loan can do for you.

It provides average-income homebuyers with 100% (zero-down) financing to buy a home.

But that’s not where its advantages stop. It also requires lower mortgage insurance than most FHA and conventional loans. Plus, it’s lenient on credit scores and debt-to-income.

So what are the current USDA loan requirements? Let’s dive in.

USDA eligible areas for 2023

Perhaps the most important requirement for a USDA loan is the location of the home.

The home must be within a USDA-eligible area. There are no exceptions granted.

However, eligible areas are plentiful, and they are surprisingly close to major metro areas in many cases. In fact, maps have not been significantly updated in more than 20 years. For 2023, maps are expected to continue to allow areas that have become solidly suburban over the past two or three decades. Cities of less than 35,000 residents are not likely to be removed from eligibility until at least after the 2030 U.S. census, says the USDA loan handbook.

The best way to see if a house is in a USDA-approved area is to use USDA’s interactive eligibility map.

A house that is outside a shaded area is eligible. About 97% of U.S. land mass is approved for USDA zero-down financing, according to the Housing Assistance Council, representing about 109 million people.

Here are some geographically-eligible areas near major metros (non-shaded areas).


Philadephia, Pennsylvania

Philadelphia USDA eligible areas

Dallas Fort-Worth, Texas

Dallas Fort Worth USDA eligible areas

Tampa, Florida

Tampa USDA eligible areas

Seattle, Washington

Seattle Bellevue USDA eligible areas

Boise, Idaho

Boise USDA eligible areas

Cleveland, Ohio

Cleveland USDA eligible areas

With so many areas available, you might find a home within easy commuting distance to work, schools, and shopping. These loans aren’t only for remote areas.

Tip: USDA definition of “rural” is quite generous. In some cases, cities of up to 35,000 residents are considered rural, even if they are traditionally known for being part of a larger metro area. It’s worth checking areas around your city, even if you don’t consider it rural.

USDA loan income limits 2023

USDA home loans are designed to provide “low- and moderate-income households” with an opportunity to own a home.

Like its definition of “rural,” what it considered moderate income is generous.

You can make up to 115% of your area’s median income and still qualify. The higher your city’s typical income, the more you can make and still be eligible.

The standard income limit is $103,500 annually for a 1-4 member household and $136,600 for a 5-8 member household, but higher around more expensive metros like Denver, Seattle, and San Diego.

Area1-4 member household income limit 2022-20235-8 member household income limit 2022-2023
Denver, Colorado$129,400$170,800
Seattle, Washington$140,650$185,650
San Diego, Calif.$149,650$197,550
Naples, Florida$108,450$143,150
Columbus, Ohio$107,750$142,250
Nashville, Tenn.$108,450$143,150

The best place to check your income eligibility is USDA’s tool. It calculates your household income and factors in deductions for:

  • Childcare expenses for children under 12
  • Dependents living in the home 
  • Certain medical expenses
  • Elderly households
  • Care of household members with disabilities

If you think your income is too high, the deductions might bring it under local limits.

Keep in mind that you must include income from anyone who lives with you in your current living arrangement, even if they will not be on the loan. Some examples of extra income could be:

  • A working teenager age 18 or older
  • A mother-in-law who collects social security
  • Your spouse’s side business
  • Gig work or contractor income

Be sure to let your lender know about all sources of income upfront since you want to be sure that you are eligible for a USDA loan when you make an offer on a house.

USDA loan down payment and closing costs 2023

The minimum down payment for a USDA loan is $0. 

You are allowed to make a down payment if you’d like. However, it’s smart not to make a down payment and keep that cash in the bank for emergencies.

You will also need about 2-5% of the home’s price for closing costs. So, don’t commit all your cash to a down payment.

If you have 5% down, compare your USDA loan costs with a conventional loan. A conventional loan does not require the 1% upfront “Guarantee Fee” that USDA charges.

USDA asset limits for 2023

There is a limit to personal assets. This is because USDA wants to reserve the program for those who can’t qualify for a conventional loan.

To be eligible, you must have:

  • Insufficient non-retirement funds to make a 20% down payment plus pay for closing costs
  • If you do have these funds, you must have insufficient income to achieve a 28% housing debt-to-income ratio and a 36% all-inclusive debt-to-income ratio with a 20% down payment

Most USDA applicants have nowhere near this level of assets, so this is typically a very easy guideline to meet.

USDA loan limits 2023

There are no hard-and-fast loan limits for the Guaranteed USDA loan program. You are eligible for any loan amount that you can qualify for. The area income limits act as loan limits in a way.

For example, if your income was exactly at the limit for most areas of the country, you would make $103,500 annually or $8,625 per month.

Monthly income$8,625
Principal, Interest, tax, insurance, HOA, mortgage insurance$2,500
Front-end debt-to-income29%
Student loans, auto loans, all other payments$1,000
Back-end debt-to-income41%
Example mortgage rate6.5%*
Estimated home price based on the above$325,000

Mortgage rates, payments, and fees are for example purposes only. Your costs will vary.

So, while USDA doesn’t limit loan amounts, it does limit income, which indirectly caps the amount you will qualify for. Your maximum debt-to-income for USDA loans is around 41%, but can be higher for certain borrowers. Each person will qualify for a different maximum loan amount based on their income, mortgage rate, other debts, credit score, and more.

USDA home loan mortgage rates

USDA loans come with some of the lowest rates of any loan program. This is surprising, considering they are a zero-down loan that is also lenient on credit scores.

The program is heavily subsidized by the government to encourage homeownership and economic activity in areas outside larger cities. As such the government packs heavy benefits into the program, such as low rates.

USDA property condition and attribute guidelines

The home itself must meet USDA guidelines as far as amenities and condition.

The goal of the USDA program is to provide households with “modest” housing that is safe, sanitary, and will retain its quality and value for the foreseeable future.

Contrary to popular belief, existing homes with in-ground swimming pools are eligible for USDA financing. However, you can’t add a pool or other luxury amenities like outdoor kitchens with a USDA construction or rehab loan.

As far as property condition, the same guidelines are used as for FHA loans. This means that all major systems like heat, water, roof, and electricity must be functioning. If there’s any question about a major system or a safety concern, the appraiser will note it on the appraisal report. The lender may require an additional inspection in this case.

For some issues, the appraiser might require the repairs prior to loan closing. Work with your real estate agent to have the seller make the repairs as soon as possible.

Pros and cons of a USDA loan

While these are fantastic loans, they do come with limitations as well.

Pros

  • Zero down payment
  • Lower upfront and ongoing mortgage insurance than FHA
  • Low mortgage rates
  • Many lenders offer them; you don’t have to apply with the government directly
  • Lenient credit score minimums; some lenders allow USDA loan credit scores as low as 580

Cons

  • Many dual-income households make too much
  • Eligible areas may be too far from work
  • Comes with upfront and ongoing mortgage insurance
  • 1-unit homes only. No multifamily properties
  • Primary residence only
  • 30-year fixed-rate loan only; no 15-year or adjustable rate mortgages allowed.

USDA loan alternatives

  • FHA loan: No income limits; 2-4 unit properties allowed.
  • VA loan: Also zero down, plus no monthly mortgage insurance. Requires qualifying military service.
  • Conventional loan: More stringent credit score and income requirements, but has no upfront guarantee fee.

USDA loan credit score minimum

You might hear that USDA lenders only accept credit scores down to 640. However, that’s not the case. That’s just the minimum score to receive a streamlined approval. 

Lenders can approve lower scores, but it takes more effort.

Some lenders allow a USDA loan credit score down to 540. Other common cutoffs are 620 and 600.

If you’re denied a USDA loan due to credit score, simply apply with another lender.

USDA mortgage insurance

USDA mortgage insurance is required for all USDA loans and lasts for the life of the loan.

The upfront fee is called the Guarantee Fee and equals 1.0% of the loan amount. This fee can be wrapped into the loan.

There is also monthly mortgage insurance, known as the Annual Fee. This amount is 0.35% of the loan balance annually. The lender divides the fee into 12 equal installments and adds it to your regular monthly payment.

As an example, a $250,000 loan would require a $2,500 upfront fee and $73 monthly in USDA mortgage insurance.

USDA Direct vs Guaranteed loan

There are two types of USDA home loans: Guaranteed and Direct.

Guaranteed make up a vast majority of USDA loans and the type we’ve been talking about in this article so far. These are for moderate-income borrowers and are issued by banks and lenders.

Direct USDA loans are for households with “low and very low” incomes. This is defined as follows.

Very low: $31,550 annual income in most areas

Low: $50,500 annual income in most areas

These loans are issued by the government agency itself and come with stricter rules. To find out more about the Direct program, see USDA’s website.

USDA lenders, the process, and how to apply

Most USDA loans are issued by private banks and lenders. Many nationwide and local lenders are approved to so it’s easy to apply.

Simply go online or call a lender and ask if they are approved to issue USDA loans. Complete a full application and have the lender pull your credit. Have them check your income and geographic area for USDA eligibility.

USDA loans are different than conventional and FHA in that the lender will send your loan to USDA itself once they do a full approval. That’s why USDA loans can take a few extra days or weeks to process compared to other loan types. Here’s the process.

  1. Apply with the lender.
  2. Submit all your documentation.
  3. Find and make an offer on a home, and get an accepted offer.
  4. The lender orders an appraisal and finalizes the approval on their end.
  5. The lender then sends the file to USDA for approval.
  6. Upon USDA approval, the lender draws final loan documents.
  7. You sign documents.
  8. The loan closes and you get the keys.

USDA loan vs FHA vs Conventional

Loan FeatureUSDAFHAConventional
Income limits$103.5k-$238.2kNoneNone
Geographic restrictions?YesNoNo
Down payment0%3.5%3%
Min. credit score580-640580620
Loan limits for 1-unit homeNone$420.6k – $970.8k$647.2 – $970.8k
Upfront mortgage insurance1.0% of loan1.75% of loanNone
Monthly mortgage insurance0.35% of loan annuallyTypically 0.85% of loan annually0.4% – 3.0%+ of loan annually; varies by down payment, credit, etc.

USDA loan FAQ

Is income eligibility based only on loan applicants?

No. Your lender will include all household income when determining whether you are below income limits. However, only loan applicant income is considered to qualify for the loan itself.

Do I need any money to buy a home with a USDA loan?

Yes, you will most likely need to pay for standard mortgage closing costs, which equal about 2-5% of the loan amount.

Can closing costs be rolled into the loan?

USDA allows closing costs to be rolled into the loan if the home appraises for more than the purchase price. For example, the home price is $250,000 but it appraises for $255,000. You can take a loan up to $255,000 and roll $5,000 in closing costs and prepaid items into the loan.

Do I get a USDA loan from the government?

The USDA Guaranteed program (the vast majority of USDA loans) is available via mortgage lenders and banks. There is a USDA Direct program for low- and very low-income borrowers that is available directly from the agency itself.

Do you qualify for a USDA loan?

Because USDA loans are so attractive, you should consider checking your eligibility, even if you think your income or location won’t qualify.

There may be right outside a USDA-eligible area, and you may have income deductions that get you below USDA limits.

Get started with your USDA loan and see if you can become a homeowner with zero down payment.

Start your USDA loan now.
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