USDA loans are mortgages backed by the U.S. Department of Agriculture, designed to help low- to moderate-income individuals and families purchase homes in eligible rural and suburban areas. These loans offer 100% financing, meaning borrowers can purchase a home with no down payment, making them one of the most affordable home loan options available. USDA loans are ideal for first-time homebuyers or those with limited savings for a down payment.

To qualify for a USDA loan, the borrower’s income must fall below certain limits, which vary based on the region and the size of the household. Typically, the household income should not exceed 115% of the median income for the area. Additionally, the property being purchased must be located in a USDA-eligible area, which includes many rural and suburban communities. USDA loans also require a minimum credit score of 640, although some lenders may approve borrowers with lower scores if they demonstrate compensating factors such as a low debt-to-income (DTI) ratio or a larger savings reserve.

Interest rates for USDA loans are typically lower than those for conventional loans, ranging around 5% or lower, depending on the borrower’s credit profile and the market conditions. In addition to no down payment, USDA loans offer low monthly mortgage insurance premiums (0.35% of the loan balance), which makes them an affordable option for buyers who meet the eligibility criteria. However, there is an upfront guarantee fee of 1% of the loan amount, which can be financed into the loan.

The loan limits for USDA loans are determined by the borrower’s ability to repay, rather than a set maximum loan limit. However, the USDA does impose income and property eligibility limits. In many cases, these loans are used to purchase modest, affordable homes that meet the USDA's property standards. The program is intended to promote homeownership in rural areas, so the property must be the borrower’s primary residence and cannot be used for investment or vacation purposes. With no down payment requirement and competitive rates, USDA loans provide a great opportunity for homeownership for those who meet the geographic and income criteria.