USDA Mortgage Loans

Middle and lower-class families in the United States deserve to own their own homes, but sometimes struggle with down payment and credit score requirements for their mortgage. Those who live in rural areas often deal with the combination of lower wages and unaffordable home prices and end up in dangerous living conditions or even on the verge of homelessness. Thankfully, the government has established the USDA loan program to help with home-buying in rural areas.

In this article

    Compare mortgage rates

    According to Bankrate’s latest survey of the nation’s largest mortgage lenders, these are the current refinance average rates for a 30-year, 15-year fixed and 5/1 adjustable-rate mortgage (ARM) refinance rates among others.

    Product Interest Rate APR
    30-Year Fixed Rate3.010%3.250%
    30-Year FHA Rate2.600%3.500%
    30-Year VA Rate2.690%2.890%
    30-Year Jumbo Rate3.030%3.150%
    20-Year Fixed Rate2.850%3.060%
    15-Year Fixed Rate2.310%2.620%
    15-Year Fixed Jumbo Rate2.300%2.390%
    5/1 ARM Rate2.800%3.960%
    7/1 ARM Rate3.040%3.900%
    7/1 ARM Jumbo Rate3.290%3.820%
    10/1 ARM Rate3.240%4.010%

    Rates data as of 7/22/2021

    The Best USDA Loan Lenders

    The majority of the lenders on the USDA’s approved lender list are smaller, regional banks that sometimes only operate in one state. To better serve our potential USDA applicants, we selected several lenders with a national or large regional footprint when creating this list of best USDA loan lenders.

    Guaranteed Rate

    Guaranteed Rate is best for online users.

    J.D. Power Rating
    Min. Credit
    Min. Down Payment
    3.8 / 5.0
    SimpleScore Guaranteed Rate 3.8
    Perks 3
    Credit Impact 3
    Customer Satisfaction N/A
    Product Variety 5
    Fees 4

    While Guaranteed Rate has over 300 branches, and lends in 50 states, borrowers can also complete a fully online mortgage or loan application. This lender has a 96% customer satisfaction rate, per surveys, and makes rates and pricing transparent.


    Operating primarily in 11 southeastern states, including Alabama, Georgia, and Mississippi, SunTrust offers USDA loans.


    J.D. Power Rating
    Min. Credit
    Min. Down Payment
    4 / 5.0
    SimpleScore Truist 4
    Perks 4
    Credit Impact 3
    Customer Satisfaction 4
    Product Variety 5
    Fees 4

    It’s a great option for those who prefer to apply and speak to a mortgage broker in person. In 2018, they ranked highest for customer satisfaction in a survey by J.D. Power and Associates for home equity lines of credit. Furthermore, home equity lines, while not USDA loans, are a related product and borrowers can be reasonably assured this service extends to all mortgages.

    Wells Fargo

    Wells Fargo is best for branch presence.

    J.D. Power Rating
    Min. Credit
    Min. Down Payment
    3.6 / 5.0
    SimpleScore Wells Fargo 3.6
    Perks 4
    Credit Impact 3
    Customer Satisfaction 3
    Product Variety 4
    Fees 4

    This nationwide bank made our list because it serves borrowers in all 50 states. Their online mortgage application can be completed in less than ten minutes, or you can call 1-877-937-9357 to speak to a mortgage broker and apply over the phone.

    New American Funding

    New American Funding is best for people with bad credit.

    J.D. Power Rating
    Min. Credit
    Min. Down Payment
    4 / 5.0
    SimpleScore New American Funding 4
    Perks 4
    Credit Impact 4
    Customer Satisfaction N/A
    Product Variety 5
    Fees 3

    This USDA-approved lender specializes in working with borrowers who have unusual credit histories or lower credit scores. They’ll work with you to help raise your score if you’re close to the USDA minimum score.

    What is a USDA Loan?

    Before you start considering a USDA mortgage loan, it’s important that you understand exactly what a USDA mortgage loan is. The United States Department of Agriculture (USDA) has two unique lending programs aimed at helping of Americans achieve the dream of homeownership. 

    These two options are the USDA Direct Loan and the USDA Guaranteed Loan. Both loans are referred to as Section 502 loans. Many people researching USDA loans are unaware that two different types of loans exist, but understanding the distinctions is important.

    With both loan types, you’ll need to be looking at a home that falls in a qualifying rural area. Generally, places with fewer than 35,000 residents will qualify. The USDA provides an online tool so you can see if the area you’re looking to buy in qualifies. There are requirements that the house must meet in order to qualify, too — but the specifics differ between the two types of loans.

    The USDA Direct Loan is available directly through the USDA and is aimed at helping lower-income Americans purchase a home. To qualify, you’ll need to earn between 50% and 80% of the median income of the area you live in. The repayment terms on the loan are either 33 years or 38 years, which is significantly longer than a traditional 15-year mortgage or even a 30-year mortgage. When payment assistance is applied to the loan, the interest rate can drop to as low as 1%, making the USDA Direct Loan an incredibly affordable option.

    The USDA Guaranteed Loan is a mortgage that is backed by the USDA but is applied for and acquired through a traditional private lender. The goal of this loan is to help spur homeownership and development in rural and suburban areas with buyers who earn below or equal to 115% of the area’s median income. Repayment terms on the USDA Guaranteed Loan are 30 years only, and the interest rate is determined by your lender based on your financial picture and the details of your loan.  

    Neither option requires a down payment. The USDA Guaranteed loan may carry an upfront fee, though, as well as an annual mortgage insurance premium, which is included in your monthly mortgage payment.

    What are the Requirements of a USDA Loan?

    To many, this may sound too good to be true. The government has placed restrictions on borrower eligibility. To qualify for a USDA financing, your household’s combined income must fall within established guidelines. Note that this includes every adult member of your household, not just the person applying for the mortgage.

    However, income guidelines have been based upon the median incomes for your area plus median household incomes. The USDA has compared the cost of housing to its affordability when setting income guidelines. This ensures that families who need help qualify for the program. In some states, a combined income of close to $80,000 wouldn’t disqualify you from the USDA loan program.

    Also, you must meet the following guidelines for a USDA direct loan:

    • Be without safe and sanitary housing
    • Unable to qualify for a loan with reasonable terms from other sources
    • Meet citizenship or eligible noncitizen requirements
    • Agree to live in the house as your primary residence
    • Have the legal ability to take on a loan
    • Minimum credit score of 620

    You don’t have to be without safe housing or unable to qualify for a loan from another lender to be eligible for a USDA guaranteed loan. For both programs, however, the property must be located in a rural area.

    The term “rural areas” can be slightly misleading and ambiguous. While your new home must be within an area supported by the USDA loan program, if you take a look at the interactive map on the USDA website, you’ll see that they lend in surprisingly large sections of each state.

    When you should use a USDA loan?

    When it comes to the USDA Direct Loan, it’s designed to help people get into a home when other loan income and down payment requirements prevent that from happening. If you’re looking to own your home and you’ve had trouble getting a loan elsewhere, you should consider a USDA Direct Loan.

    However, it only makes sense if your income falls within the required guidelines and the home meets the qualifications. If you’re unable to get a loan elsewhere because of credit issues and not because of low income, a USDA loan probably won’t be able to help.

    The USDA Guaranteed Loan is an option that should be considered anytime you’re purchasing a home that is in an approved area. Because of the guarantee from the USDA, you may be able to get a better rate from your lender than with other types of loans.

    The ability to roll closing costs into the loan with no down payment could also help make this an attractive option if you don’t have the funds needed for a different type of loan. Keep in mind, though, that the annual insurance fee stays for the life of the loan and doesn’t come off as traditional mortgage insurance does.

    Ultimately, the best option is to reach out to a lender and inquire about your different options. Make sure when you’re comparing options that you include all fees in your calculations. While the USDA Guaranteed Loan doesn’t require extra mortgage insurance, there is still an upfront fee and annual fee that needs to be accounted for. Compare the costs with other mortgage options like an FHA loan, a VA loan (if you qualify) or a conventional mortgage.

    What are the Property Restrictions on USDA Loans?

    Just because the loans are offered by the U.S. Department of Agriculture doesn’t mean you’ll be living on a farm and milking cows. In fact, USDA loan financing doesn’t cover income-producing properties.

    USDA loans can be used to purchase a new or existing residence that is less than 2,000 square feet. Its market value can’t be more than the applicable area’s loan limit, and there can’t be an in-ground pool on the property. If you already own a home, but it needs repairs or renovations, USDA financing can help with that, too.

    Do You Qualify for a USDA Loan?

    To find out if you qualify for a USDA loan, you can talk to an approved USDA lender or complete the USDA’s online questionnaire.

    The online form walks you through a set of questions to determine eligibility. These will include income eligibility requirements, asking potential homebuyers to provide the state and county they plan on buying in, how many people live in the house and household income. Once you have input all the data, you’ll receive notification on whether you’re eligible or ineligible to apply for a USDA loan.

    Local banks and mortgage lenders also offer USDA guaranteed loans. Lenders would be able to sit down with you to go over your eligibility. They can also answer any questions you might have about USDA financing and help you complete your application.

    What are the Types of USDA Loans?

    If you meet the qualifications for the USDA loan program, you’ll have the option of applying for two types of USDA loans.

    1. Direct Loans – If you take out a USDA direct loan, you’re borrowing directly from the government. Meant to help low to middle-income families buy a house, USDA direct loans have stricter income restrictions than guaranteed loans.
    2. Guaranteed Loans – A guaranteed loan is one which is granted by an approved lender but has an attached government guarantee. The USDA partners with lenders in many counties like rural banks or credit unions. The government guarantee ensures repayment to lenders, and thus those lenders are more willing to lend to individuals with lower credit scores or no down payment.

    What are the typical USDA loan fees?

    There are a lot of cost savings that come with USDA loans, but there are still some fees that you’ll need to pay. The good news is that all of these fees can be rolled into the total cost of the loan and spread out over time. In other words, you might see your monthly payment go up by a few dollars, but you won’t have to fork over a large chunk of change at closing.

    Here’s a look at some of the more common fees you can expect.

    • Loan guarantee fee — This is an upfront fee that the lender is required to pay to the USDA for your loan. While the lender is paying the fee, the lender can (and will) pass that fee onto you. The maximum fee is 3.5% of the loan principal. This fee does not apply to the USDA Direct Loan. Keep in mind that this fee is non-refundable once a Loan Note Guarantee (LNG) has been issued.
    • Annual fee — In addition to the upfront loan guarantee fee, the lender can charge you up to a 0.5% fee on the average annual unpaid principal balance of your loan. This fee and the loan guarantee fee act in place of mortgage insurance. While the annual fee may fluctuate from year to year for new loans, the fee you pay will be locked in for the life of your loan at the time of origination. This fee does not apply to the USDA Direct Loan.
    • Closing costs — As is the case with other loan types, there are closing costs associated with your loan. What’s different is that these closing costs can be rolled into the cost of your loan, as previously mentioned.
    • Late fees — If your fees are paid late, you may be subject to an additional late fee.

    It’s important to point out that while the option exists to include the upfront fees in the total loan cost, it’s not mandatory. If you do choose to pay these fees upfront, you can save on interest costs over the life of the loan.

    The rates a lender offers for the upfront and annual fees may also differ based on whether the transaction is a purchase or refinance.

    Pros and cons of USDA loans

    When it comes to making the decision on whether you and your family want to utilize a USDA home loan, you should take the time to understand the pros and cons of the decision.


    • A path to homeownership — The biggest advantage of USDA home loans, and the USDA Direct Loan in particular, is that it provides a path to homeownership where there may not be another route. If you’re unable to make a down payment, cover closing costs or have the income needed to get loan approval elsewhere, it could be a viable option.
    • Zero-down financing — While it’s not mandatory, many people are excited to take advantage of rolling the loan costs into the total cost of the loan. While this will increase the total amount you owe, you’ll only see a small jump in your monthly payments and will owe nothing upfront.
    • Low rates — With the USDA Direct Loan, your interest rate can be as low as 1% with payment assistance programs. With the USDA Guaranteed Loan, you may be able to get a much lower rate because of the decreased risk to the lender. 


    • Still some additional fees — While USDA loans don’t come with traditional private mortgage insurance (PMI), the USDA Guaranteed Loan has an upfront guarantee fee and an annual fee that works in place of the mortgage insurance. The fee may be lower than the cost of PMI, but the annual fee is for the life of the loan, whereas PMI comes off when you reach 20% equity.
    • You and the house must qualify — Unlike other types of loans, there are quite a few qualification requirements that must be met in order for you to qualify for a loan. These requirements include where the house is located, the characteristics of the house, how you’re going to use the house and your income information.
    • Credit score requirements — Many lenders require you to have at least a 640 credit score to apply for a USDA loan. Even though the income requirements are lower than with other types of loans, you still need to demonstrate good borrowing habits that make you a good candidate for a loan. You may be able to get a USDA loan with a lower credit score, but that will depend on the lender you choose to work with.

    How to Apply for a USDA Loan

    To apply for a USDA loan, you can either contact your local rural development office about direct loans or contact an approved lender for guaranteed loans. Like any loan or mortgage application, you will have to provide proof of income and other documentation as part of your loan application.

    If you’ve struggled to save up a down payment, or past mistakes have hurt your credit score, the American Dream may still be within your reach with a USDA loan.



    We’ve created the SimpleScore to help you objectively compare products and services here at The Simple Dollar.

    Our editorial team:

    • Identifies five factors to compare across each brand
    • Determines the rating criteria for each factor
    • Calculate an average of those five factor scores to get one SimpleScore

    We break down each of these five factors and their rating criteria for our review of the best mortgage companies.

    Why do some brands have different SimpleScores on different pages?

    Some brands like Bank of America, Wells Fargo, and Chase have different SimpleScores because they offer more than one financial solution — like home loans, auto loans, personal loans and more.

    For instance, in our Bank of America Mortgage Review, we give the company a 3.8 out 5 based on our five rating factors for mortgages. In our Bank of America Auto Loans Review, we give the company a 4.4 out of 5 based on our rating factors for auto loans. By tailoring our SimpleScore to each financial solution, we’re able to give you a more accurate view of a brand’s services and how it compares to competitors’ services.


    Mortgage lending companies that provide more perks receive a higher score from us.

    Hard/Soft credit checks

    We know that credit checks affect your score –– that’s why we favor companies that offer soft credit checks or hard credit checks when you want to see your pre-approval rates.

    Customer satisfaction

    We use the J.D. Power 2019 Mortgage Origination Satisfaction Study℠ to find out how customers rate their experience with each company. (If a company is not included in J.D. Power’s study, we skip this rating factor and average the remaining factor scores.)

    Product variety

    Mortgage lenders that offer more products for their home loans are given higher scores.


    Fees can add up fast. Companies that don’t require as many fees for your home loan receive a higher score with us.

    Dena Landon

    Contributing Writer

    Dena draws upon ten years of experience in the banking industry to help borrowers make educated decisions.