What USDA loans cost
USDA charges two fees in place of the mortgage insurance a conventional loan would carry. An upfront guarantee fee of 1% of the loan amount is charged at closing and is almost always rolled into the balance, and an annual fee of 0.35% of the remaining balance is collected monthly for the life of the loan.
Compare that with FHA, where the annual MIP on a low-down-payment loan runs roughly twice as high and also never cancels. On a $250,000 loan the USDA annual fee is around $73 a month against roughly $115 for FHA. For a buyer who qualifies on both geography and income, USDA is usually the cheaper of the two zero-and-low-down options.
Who qualifies
- Location: The property must be in an eligible rural area. That term is broader than it sounds — many outer suburbs and small towns within commuting distance of mid-sized cities qualify. USDA publishes a property eligibility map, and it is the only authority that matters; a listing describing itself as rural is not evidence.
- Income: Household income must not exceed 115% of the area median income for the county, counting every adult in the household whether or not they are on the loan. This is the limit that disqualifies most applicants who clear the geography test.
- Occupancy: The home must be your primary residence. USDA loans cannot be used for investment property, second homes, or working farms.
- Credit: There is no published minimum score in the programme rules, but most lenders apply their own floor around 640 for automated underwriting. Below that, manual underwriting is possible and slower.
How USDA compares with the alternatives
Against FHA: USDA wins on cost when you qualify, because both the upfront and the annual fee are lower and no down payment is required. FHA wins on availability — it has no geographic or income restriction at all.
Against a conventional loan with 3% down: conventional PMI is more expensive month to month at low down payments, but it cancels. Once you reach 20% equity, conventional PMI stops and the USDA annual fee does not. Over a full 30-year term a conventional loan can therefore cost less in total, even though it costs more in the early years. If you expect to move or refinance within a decade, USDA is usually ahead; if you expect to hold the loan to maturity, run both.
Frequently asked questions
Is my area eligible for a USDA loan?
Eligibility is determined by USDA's own property eligibility map, not by how rural a place feels. Many outer suburbs of mid-sized cities qualify while genuinely remote areas near a large metro do not. Check the specific address on the USDA map before assuming either way — the boundaries follow census designations and are redrawn periodically.
What is the income limit for a USDA loan?
Household income must be at or below 115% of the area median income for the county where the property sits. The calculation counts income from every adult in the household, including people who will not be on the mortgage. Limits vary widely by county and are adjusted for household size, so a family of five can earn more than a couple and still qualify.
Does the USDA annual fee ever go away?
No. Unlike conventional PMI, which must be cancelled at 78% loan-to-value, the USDA annual fee continues for the entire life of the loan. The only way to stop paying it is to refinance into a different loan type, which becomes worthwhile once you have enough equity to avoid conventional PMI.
Can I buy a farm with a USDA loan?
Not with this programme. The Single Family Housing Guaranteed Loan covered here is for primary residences. USDA runs separate farm loan programmes through the Farm Service Agency with entirely different rules, limits and underwriting.
Reference sources
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