USDA loans are originated or guaranteed by the Department of Agriculture, known as Section 502 or 504 loans, and are designed to assist low- and moderate-income groups in designated rural areas to purchase a home.

Geographically, 97% of the land in the U.S. is within USDA loan-eligible areas, and about one-third of Americans live in these areas. These areas are not exclusively very rural, and some suburban areas may qualify as well.

There are three main types of USDA loans

Direct loans, which are made directly by the USDA and are targeted to very low-income people, with zero down payment and very low interest rates.

Guaranteed loans, which are lent by private organizations that have been reviewed and approved by the USDA, and are guaranteed by the government to reduce their risk in exchange for attractive loan terms; and

Repair/renovation loans and grants to help homeowners repair their homes, and grants for low-income seniors who need to improve their homes for health and safety reasons.

The advantages of USDA are significant

Zero down payment, which saves you a lot of money.

Competitive interest rates, often lower than FHA and other loans, up to 50% below market rates in certain circumstances.

Low mortgage insurance premiums, only about 1% upfront and 0.35% annual fee.

No mandatory minimum credit score, but good credit can lead to favorable rates.

Low closing and other fees, some of which can be amortized into the loan, and no limit on the use of the grant.

USDA restrictions apply

Geographically, the home must be in a rural area with a population of 35,000 or less; some suburban areas may qualify, but more detailed information is needed.

Income level, there are thresholds based on residency, if you exceed the thresholds you will be ineligible.

Single family owner-occupied homes only, vacation homes, etc. do not qualify.

USDA Interest Rate

Based on historical data, Direct Loans are 3.25% on November 1, 2022 for low income and other groups, 33 - 38 years.

Guaranteed loans are set by partner organizations and are slightly lower than conventional loans; and

Repair and Renovation Loans are 1% with 20 year repayment terms.

USDA Fees

Fees are 2% - 6% of the purchase price, including appraisal, processing, title search, etc. There is also a mortgage insurance premium of about 1% of the loan amount, which is good to know that it can be factored into the repayment of the loan.

To apply, consult your local rural development agency, find a housing specialist or approved lender, and research eligibility requirements in advance.