USDA Loan Calculator.

USDA Mortgage Calculator

Use this free tool to figure your monthly payments on a fixed-rate USDA mortgage for a given loan amount. By default the USDA loan guarantee fee is rolled into the loan. Borrowers can unclick the associated check box if they do not wish to finance that fee in their mortgage. Current Ashburn USDA home loan rates are shown beneath the calculator.


Home & Downpayment Amount
Home price: $
Down payment: $
Home loan amount: $
Mortgage Structure Amount
Term of the loan: years
Current Interest Rates: %
Mortgage Insurance Premium Amount
USDA Guarantee Fee: %
Finance Loan Guarantee Fee:
Annual USDA MIP Fee: %
Closing Costs Amount
Discount & Origination Points: %
Any Other Closing Costs: $
Other Ownership Costs Amount
Annual Real Estate Taxes: $
Annual Homeowner's Insurance: $
Monthly HOA Dues: $
 
USDA Home Loan Summary for a 30-yr $262,626.00 Mortgage

$1,330.69

Monthly Principal & Interest Payment

$262,626.00

Loan Amount

$451.60

Other Monthly Costs of Ownership

30 years

Term of Loan

$1,782.29

All-inclusive Monthly Payment

4.50%

Interest Rate

$0.00

Cost of Discount Points

$2,626.00

Cost of USDA Loan Guarantee

$0.00

Other Closing Costs

$2,626.00

Total Closing Costs

Current 30-Year Mortgage Rates on a $200,000 Home Loan

The following table highlights locally available current mortgage rates. By default 30-year purchase loans are displayed. Clicking on the refinance button switches loans to refinance. Other loan adjustment options including price, down payment, home location, credit score, term & ARM options are available for selection in the filters area at the top of the table.

Amortization Schedule for a $262,626.00 30-Year Fixed-rate Home Loan @ 4.50% APR

Year Month Interest Principal Balance
1 1 $984.85 $345.84 $262,280.16
1 2 $983.55 $347.14 $261,933.02
1 3 $982.25 $348.44 $261,584.58
1 4 $980.94 $349.75 $261,234.84
1 5 $979.63 $351.06 $260,883.78
1 6 $978.31 $352.37 $260,531.41
1 7 $976.99 $353.69 $260,177.72
1 8 $975.67 $355.02 $259,822.69
1 9 $974.34 $356.35 $259,466.34
1 10 $973.00 $357.69 $259,108.65
1 11 $971.66 $359.03 $258,749.62
1 12 $970.31 $360.38 $258,389.25
Year 1 $11,731.50 $4,236.75 $258,389.25
2 1 $968.96 $361.73 $258,027.52
2 2 $967.60 $363.08 $257,664.44
2 3 $966.24 $364.45 $257,299.99
2 4 $964.87 $365.81 $256,934.18
2 5 $963.50 $367.18 $256,566.99
2 6 $962.13 $368.56 $256,198.43
2 7 $960.74 $369.94 $255,828.49
2 8 $959.36 $371.33 $255,457.16
2 9 $957.96 $372.72 $255,084.44
2 10 $956.57 $374.12 $254,710.31
2 11 $955.16 $375.52 $254,334.79
2 12 $953.76 $376.93 $253,957.86
Year 2 $11,536.86 $4,431.39 $253,957.86
3 1 $952.34 $378.35 $253,579.51
3 2 $950.92 $379.76 $253,199.75
3 3 $949.50 $381.19 $252,818.56
3 4 $948.07 $382.62 $252,435.94
3 5 $946.63 $384.05 $252,051.89
3 6 $945.19 $385.49 $251,666.40
3 7 $943.75 $386.94 $251,279.46
3 8 $942.30 $388.39 $250,891.07
3 9 $940.84 $389.85 $250,501.22
3 10 $939.38 $391.31 $250,109.92
3 11 $937.91 $392.78 $249,717.14
3 12 $936.44 $394.25 $249,322.89
Year 3 $11,333.28 $4,634.97 $249,322.89
4 1 $934.96 $395.73 $248,927.17
4 2 $933.48 $397.21 $248,529.96
4 3 $931.99 $398.70 $248,131.26
4 4 $930.49 $400.20 $247,731.06
4 5 $928.99 $401.70 $247,329.37
4 6 $927.49 $403.20 $246,926.16
4 7 $925.97 $404.71 $246,521.45
4 8 $924.46 $406.23 $246,115.22
4 9 $922.93 $407.76 $245,707.46
4 10 $921.40 $409.28 $245,298.18
4 11 $919.87 $410.82 $244,887.36
4 12 $918.33 $412.36 $244,475.00
Year 4 $11,120.35 $4,847.90 $244,475.00
5 1 $916.78 $413.91 $244,061.09
5 2 $915.23 $415.46 $243,645.63
5 3 $913.67 $417.02 $243,228.62
5 4 $912.11 $418.58 $242,810.04
5 5 $910.54 $420.15 $242,389.89
5 6 $908.96 $421.73 $241,968.16
5 7 $907.38 $423.31 $241,544.86
5 8 $905.79 $424.89 $241,119.96
5 9 $904.20 $426.49 $240,693.47
5 10 $902.60 $428.09 $240,265.39
5 11 $901.00 $429.69 $239,835.70
5 12 $899.38 $431.30 $239,404.39
Year 5 $10,897.64 $5,070.61 $239,404.39
6 1 $897.77 $432.92 $238,971.47
6 2 $896.14 $434.54 $238,536.93
6 3 $894.51 $436.17 $238,100.75
6 4 $892.88 $437.81 $237,662.94
6 5 $891.24 $439.45 $237,223.49
6 6 $889.59 $441.10 $236,782.39
6 7 $887.93 $442.75 $236,339.64
6 8 $886.27 $444.41 $235,895.23
6 9 $884.61 $446.08 $235,449.14
6 10 $882.93 $447.75 $235,001.39
6 11 $881.26 $449.43 $234,551.96
6 12 $879.57 $451.12 $234,100.84
Year 6 $10,664.70 $5,303.55 $234,100.84
7 1 $877.88 $452.81 $233,648.03
7 2 $876.18 $454.51 $233,193.53
7 3 $874.48 $456.21 $232,737.31
7 4 $872.76 $457.92 $232,279.39
7 5 $871.05 $459.64 $231,819.75
7 6 $869.32 $461.36 $231,358.39
7 7 $867.59 $463.09 $230,895.30
7 8 $865.86 $464.83 $230,430.47
7 9 $864.11 $466.57 $229,963.89
7 10 $862.36 $468.32 $229,495.57
7 11 $860.61 $470.08 $229,025.49
7 12 $858.85 $471.84 $228,553.65
Year 7 $10,421.05 $5,547.19 $228,553.65
8 1 $857.08 $473.61 $228,080.04
8 2 $855.30 $475.39 $227,604.65
8 3 $853.52 $477.17 $227,127.48
8 4 $851.73 $478.96 $226,648.52
8 5 $849.93 $480.76 $226,167.77
8 6 $848.13 $482.56 $225,685.21
8 7 $846.32 $484.37 $225,200.84
8 8 $844.50 $486.18 $224,714.66
8 9 $842.68 $488.01 $224,226.65
8 10 $840.85 $489.84 $223,736.81
8 11 $839.01 $491.67 $223,245.14
8 12 $837.17 $493.52 $222,751.62
Year 8 $10,166.22 $5,802.03 $222,751.62
9 1 $835.32 $495.37 $222,256.25
9 2 $833.46 $497.23 $221,759.02
9 3 $831.60 $499.09 $221,259.93
9 4 $829.72 $500.96 $220,758.97
9 5 $827.85 $502.84 $220,256.13
9 6 $825.96 $504.73 $219,751.40
9 7 $824.07 $506.62 $219,244.78
9 8 $822.17 $508.52 $218,736.26
9 9 $820.26 $510.43 $218,225.84
9 10 $818.35 $512.34 $217,713.50
9 11 $816.43 $514.26 $217,199.23
9 12 $814.50 $516.19 $216,683.04
Year 9 $9,899.67 $6,068.57 $216,683.04
10 1 $812.56 $518.13 $216,164.92
10 2 $810.62 $520.07 $215,644.85
10 3 $808.67 $522.02 $215,122.83
10 4 $806.71 $523.98 $214,598.85
10 5 $804.75 $525.94 $214,072.91
10 6 $802.77 $527.91 $213,545.00
10 7 $800.79 $529.89 $213,015.10
10 8 $798.81 $531.88 $212,483.22
10 9 $796.81 $533.88 $211,949.35
10 10 $794.81 $535.88 $211,413.47
10 11 $792.80 $537.89 $210,875.58
10 12 $790.78 $539.90 $210,335.68
Year 10 $9,620.88 $6,347.36 $210,335.68
11 1 $788.76 $541.93 $209,793.75
11 2 $786.73 $543.96 $209,249.79
11 3 $784.69 $546.00 $208,703.79
11 4 $782.64 $548.05 $208,155.74
11 5 $780.58 $550.10 $207,605.64
11 6 $778.52 $552.17 $207,053.47
11 7 $776.45 $554.24 $206,499.23
11 8 $774.37 $556.32 $205,942.92
11 9 $772.29 $558.40 $205,384.52
11 10 $770.19 $560.50 $204,824.02
11 11 $768.09 $562.60 $204,261.43
11 12 $765.98 $564.71 $203,696.72
Year 11 $9,329.29 $6,638.96 $203,696.72
12 1 $763.86 $566.82 $203,129.89
12 2 $761.74 $568.95 $202,560.94
12 3 $759.60 $571.08 $201,989.86
12 4 $757.46 $573.23 $201,416.63
12 5 $755.31 $575.37 $200,841.26
12 6 $753.15 $577.53 $200,263.73
12 7 $750.99 $579.70 $199,684.03
12 8 $748.82 $581.87 $199,102.16
12 9 $746.63 $584.05 $198,518.10
12 10 $744.44 $586.24 $197,931.86
12 11 $742.24 $588.44 $197,343.41
12 12 $740.04 $590.65 $196,752.76
Year 12 $9,024.29 $6,943.95 $196,752.76
13 1 $737.82 $592.86 $196,159.90
13 2 $735.60 $595.09 $195,564.81
13 3 $733.37 $597.32 $194,967.49
13 4 $731.13 $599.56 $194,367.93
13 5 $728.88 $601.81 $193,766.13
13 6 $726.62 $604.06 $193,162.06
13 7 $724.36 $606.33 $192,555.73
13 8 $722.08 $608.60 $191,947.13
13 9 $719.80 $610.89 $191,336.24
13 10 $717.51 $613.18 $190,723.07
13 11 $715.21 $615.48 $190,107.59
13 12 $712.90 $617.78 $189,489.81
Year 13 $8,705.29 $7,262.96 $189,489.81
14 1 $710.59 $620.10 $188,869.71
14 2 $708.26 $622.43 $188,247.28
14 3 $705.93 $624.76 $187,622.52
14 4 $703.58 $627.10 $186,995.42
14 5 $701.23 $629.45 $186,365.96
14 6 $698.87 $631.82 $185,734.15
14 7 $696.50 $634.18 $185,099.96
14 8 $694.12 $636.56 $184,463.40
14 9 $691.74 $638.95 $183,824.45
14 10 $689.34 $641.35 $183,183.11
14 11 $686.94 $643.75 $182,539.36
14 12 $684.52 $646.16 $181,893.19
Year 14 $8,371.63 $7,596.62 $181,893.19
15 1 $682.10 $648.59 $181,244.60
15 2 $679.67 $651.02 $180,593.58
15 3 $677.23 $653.46 $179,940.12
15 4 $674.78 $655.91 $179,284.21
15 5 $672.32 $658.37 $178,625.84
15 6 $669.85 $660.84 $177,965.00
15 7 $667.37 $663.32 $177,301.68
15 8 $664.88 $665.81 $176,635.87
15 9 $662.38 $668.30 $175,967.57
15 10 $659.88 $670.81 $175,296.76
15 11 $657.36 $673.32 $174,623.44
15 12 $654.84 $675.85 $173,947.59
Year 15 $8,022.64 $7,945.60 $173,947.59
16 1 $652.30 $678.38 $173,269.20
16 2 $649.76 $680.93 $172,588.27
16 3 $647.21 $683.48 $171,904.79
16 4 $644.64 $686.04 $171,218.75
16 5 $642.07 $688.62 $170,530.13
16 6 $639.49 $691.20 $169,838.93
16 7 $636.90 $693.79 $169,145.14
16 8 $634.29 $696.39 $168,448.75
16 9 $631.68 $699.00 $167,749.74
16 10 $629.06 $701.63 $167,048.12
16 11 $626.43 $704.26 $166,343.86
16 12 $623.79 $706.90 $165,636.96
Year 16 $7,657.62 $8,310.62 $165,636.96
17 1 $621.14 $709.55 $164,927.41
17 2 $618.48 $712.21 $164,215.20
17 3 $615.81 $714.88 $163,500.32
17 4 $613.13 $717.56 $162,782.76
17 5 $610.44 $720.25 $162,062.51
17 6 $607.73 $722.95 $161,339.56
17 7 $605.02 $725.66 $160,613.89
17 8 $602.30 $728.39 $159,885.51
17 9 $599.57 $731.12 $159,154.39
17 10 $596.83 $733.86 $158,420.53
17 11 $594.08 $736.61 $157,683.92
17 12 $591.31 $739.37 $156,944.55
Year 17 $7,275.84 $8,692.41 $156,944.55
18 1 $588.54 $742.15 $156,202.41
18 2 $585.76 $744.93 $155,457.48
18 3 $582.97 $747.72 $154,709.76
18 4 $580.16 $750.53 $153,959.23
18 5 $577.35 $753.34 $153,205.89
18 6 $574.52 $756.17 $152,449.72
18 7 $571.69 $759.00 $151,690.72
18 8 $568.84 $761.85 $150,928.88
18 9 $565.98 $764.70 $150,164.17
18 10 $563.12 $767.57 $149,396.60
18 11 $560.24 $770.45 $148,626.15
18 12 $557.35 $773.34 $147,852.81
Year 18 $6,876.51 $9,091.74 $147,852.81
19 1 $554.45 $776.24 $147,076.57
19 2 $551.54 $779.15 $146,297.42
19 3 $548.62 $782.07 $145,515.35
19 4 $545.68 $785.00 $144,730.34
19 5 $542.74 $787.95 $143,942.40
19 6 $539.78 $790.90 $143,151.49
19 7 $536.82 $793.87 $142,357.62
19 8 $533.84 $796.85 $141,560.78
19 9 $530.85 $799.83 $140,760.94
19 10 $527.85 $802.83 $139,958.11
19 11 $524.84 $805.84 $139,152.26
19 12 $521.82 $808.87 $138,343.40
Year 19 $6,458.84 $9,509.41 $138,343.40
20 1 $518.79 $811.90 $137,531.50
20 2 $515.74 $814.94 $136,716.55
20 3 $512.69 $818.00 $135,898.55
20 4 $509.62 $821.07 $135,077.49
20 5 $506.54 $824.15 $134,253.34
20 6 $503.45 $827.24 $133,426.10
20 7 $500.35 $830.34 $132,595.76
20 8 $497.23 $833.45 $131,762.31
20 9 $494.11 $836.58 $130,925.73
20 10 $490.97 $839.72 $130,086.01
20 11 $487.82 $842.86 $129,243.15
20 12 $484.66 $846.03 $128,397.12
Year 20 $6,021.97 $9,946.27 $128,397.12
21 1 $481.49 $849.20 $127,547.93
21 2 $478.30 $852.38 $126,695.54
21 3 $475.11 $855.58 $125,839.96
21 4 $471.90 $858.79 $124,981.18
21 5 $468.68 $862.01 $124,119.17
21 6 $465.45 $865.24 $123,253.93
21 7 $462.20 $868.49 $122,385.44
21 8 $458.95 $871.74 $121,513.70
21 9 $455.68 $875.01 $120,638.69
21 10 $452.40 $878.29 $119,760.40
21 11 $449.10 $881.59 $118,878.81
21 12 $445.80 $884.89 $117,993.92
Year 21 $5,565.04 $10,403.20 $117,993.92
22 1 $442.48 $888.21 $117,105.71
22 2 $439.15 $891.54 $116,214.17
22 3 $435.80 $894.88 $115,319.28
22 4 $432.45 $898.24 $114,421.04
22 5 $429.08 $901.61 $113,519.44
22 6 $425.70 $904.99 $112,614.45
22 7 $422.30 $908.38 $111,706.06
22 8 $418.90 $911.79 $110,794.27
22 9 $415.48 $915.21 $109,879.07
22 10 $412.05 $918.64 $108,960.42
22 11 $408.60 $922.09 $108,038.34
22 12 $405.14 $925.54 $107,112.79
Year 22 $5,087.12 $10,881.13 $107,112.79
23 1 $401.67 $929.01 $106,183.78
23 2 $398.19 $932.50 $105,251.28
23 3 $394.69 $936.00 $104,315.29
23 4 $391.18 $939.51 $103,375.78
23 5 $387.66 $943.03 $102,432.75
23 6 $384.12 $946.56 $101,486.19
23 7 $380.57 $950.11 $100,536.08
23 8 $377.01 $953.68 $99,582.40
23 9 $373.43 $957.25 $98,625.15
23 10 $369.84 $960.84 $97,664.30
23 11 $366.24 $964.45 $96,699.86
23 12 $362.62 $968.06 $95,731.79
Year 23 $4,587.25 $11,381.00 $95,731.79
24 1 $358.99 $971.69 $94,760.10
24 2 $355.35 $975.34 $93,784.76
24 3 $351.69 $978.99 $92,805.77
24 4 $348.02 $982.67 $91,823.10
24 5 $344.34 $986.35 $90,836.75
24 6 $340.64 $990.05 $89,846.70
24 7 $336.93 $993.76 $88,852.94
24 8 $333.20 $997.49 $87,855.45
24 9 $329.46 $1,001.23 $86,854.22
24 10 $325.70 $1,004.98 $85,849.24
24 11 $321.93 $1,008.75 $84,840.48
24 12 $318.15 $1,012.54 $83,827.95
Year 24 $4,064.40 $11,903.84 $83,827.95
25 1 $314.35 $1,016.33 $82,811.62
25 2 $310.54 $1,020.14 $81,791.47
25 3 $306.72 $1,023.97 $80,767.50
25 4 $302.88 $1,027.81 $79,739.69
25 5 $299.02 $1,031.66 $78,708.03
25 6 $295.16 $1,035.53 $77,672.50
25 7 $291.27 $1,039.42 $76,633.08
25 8 $287.37 $1,043.31 $75,589.77
25 9 $283.46 $1,047.23 $74,542.54
25 10 $279.53 $1,051.15 $73,491.39
25 11 $275.59 $1,055.09 $72,436.30
25 12 $271.64 $1,059.05 $71,377.25
Year 25 $3,517.54 $12,450.70 $71,377.25
26 1 $267.66 $1,063.02 $70,314.22
26 2 $263.68 $1,067.01 $69,247.21
26 3 $259.68 $1,071.01 $68,176.20
26 4 $255.66 $1,075.03 $67,101.18
26 5 $251.63 $1,079.06 $66,022.12
26 6 $247.58 $1,083.10 $64,939.01
26 7 $243.52 $1,087.17 $63,851.85
26 8 $239.44 $1,091.24 $62,760.61
26 9 $235.35 $1,095.34 $61,665.27
26 10 $231.24 $1,099.44 $60,565.83
26 11 $227.12 $1,103.57 $59,462.26
26 12 $222.98 $1,107.70 $58,354.56
Year 26 $2,945.56 $13,022.69 $58,354.56
27 1 $218.83 $1,111.86 $57,242.70
27 2 $214.66 $1,116.03 $56,126.67
27 3 $210.48 $1,120.21 $55,006.46
27 4 $206.27 $1,124.41 $53,882.05
27 5 $202.06 $1,128.63 $52,753.42
27 6 $197.83 $1,132.86 $51,620.56
27 7 $193.58 $1,137.11 $50,483.45
27 8 $189.31 $1,141.37 $49,342.07
27 9 $185.03 $1,145.65 $48,196.42
27 10 $180.74 $1,149.95 $47,046.47
27 11 $176.42 $1,154.26 $45,892.20
27 12 $172.10 $1,158.59 $44,733.61
Year 27 $2,347.30 $13,620.95 $44,733.61
28 1 $167.75 $1,162.94 $43,570.68
28 2 $163.39 $1,167.30 $42,403.38
28 3 $159.01 $1,171.67 $41,231.70
28 4 $154.62 $1,176.07 $40,055.63
28 5 $150.21 $1,180.48 $38,875.16
28 6 $145.78 $1,184.91 $37,690.25
28 7 $141.34 $1,189.35 $36,500.90
28 8 $136.88 $1,193.81 $35,307.09
28 9 $132.40 $1,198.29 $34,108.81
28 10 $127.91 $1,202.78 $32,906.03
28 11 $123.40 $1,207.29 $31,698.74
28 12 $118.87 $1,211.82 $30,486.92
Year 28 $1,721.56 $14,246.69 $30,486.92
29 1 $114.33 $1,216.36 $29,270.56
29 2 $109.76 $1,220.92 $28,049.64
29 3 $105.19 $1,225.50 $26,824.14
29 4 $100.59 $1,230.10 $25,594.04
29 5 $95.98 $1,234.71 $24,359.33
29 6 $91.35 $1,239.34 $23,119.99
29 7 $86.70 $1,243.99 $21,876.00
29 8 $82.04 $1,248.65 $20,627.35
29 9 $77.35 $1,253.33 $19,374.01
29 10 $72.65 $1,258.03 $18,115.98
29 11 $67.93 $1,262.75 $16,853.23
29 12 $63.20 $1,267.49 $15,585.74
Year 29 $1,067.07 $14,901.18 $15,585.74
30 1 $58.45 $1,272.24 $14,313.50
30 2 $53.68 $1,277.01 $13,036.49
30 3 $48.89 $1,281.80 $11,754.69
30 4 $44.08 $1,286.61 $10,468.08
30 5 $39.26 $1,291.43 $9,176.65
30 6 $34.41 $1,296.27 $7,880.37
30 7 $29.55 $1,301.14 $6,579.24
30 8 $24.67 $1,306.02 $5,273.22
30 9 $19.77 $1,310.91 $3,962.31
30 10 $14.86 $1,315.83 $2,646.48
30 11 $9.92 $1,320.76 $1,325.72
30 12 $4.97 $1,325.72 $0.00
Year 30 $382.51 $15,585.74 $0.00

The Essential Guide to USDA Home Loans

Buying a house is one of the most expensive purchases people make in a lifetime. Because of the large cost, some families end up renting indefinitely. And as house prices increase in major cities, homeownership is a struggle for low to moderate-income families. As a response, some people choose to move to suburbs or rural locations where the cost of living is more affordable.

If you’re looking to live away from the city, the USDA home loan program can help you. This is an affordable mortgage option geared toward homebuyers who have a hard time qualifying for conventional loans. If you’re looking for financing with a low down payment option, you should certainly look into the USDA loan program.

Our article will explain how USDA loans work and specific requirements your need to qualify. This includes the minimum credit score, income limits, and debt-to-income ratio. We’ll compare USDA loans with traditional conventional mortgages. We’ll also explain the benefits and drawbacks of USDA loans in detail. Then, we’ll include a sample mortgage payment calculation. This will help you understand howa small down payment can help boost your mortgage savings.

What are USDA Home Loans?

House in the countryside.

USDA loans are mortgages subsidized by the U.S. Department of Agriculture, providing 100% financing to qualified borrowers. It does not require a down payment, which makes it an attractive option for borrowers. The USDA loan program is specifically designed for low to moderate-income homebuyers who need assistance in purchasing their own residential property. But as a requirement, the loan is only eligible in USDA rural areas.

When we think about the USDA, we rarely associate them with mortgages. The department is more known for regulating farming and food safety guidelines throughout the country. But besides these roles, they also manage rural development projects to aid communities in relatively low population areas. Specifically, the USDA guaranteed loan program seeks to assist families achieve home ownership, while helping “improve the economy and quality of life in rural America.” Our article will focus on the USDA guaranteed loan program. 

The USDA mainly offers three types of home loans for qualified borrowers:

  • USDA Guaranteed Loans: The section 502 guaranteed loan program assists lenders by offering mortgages at market-low rates. This also comes with a zero-down payment option (100% financing), making it a more affordable loan for low to moderate-income homebuyers. The mortgage is issued by USDA-approved lenders and backed by the federal government to protect lenders against default. To be eligible, applicants must meet certain qualifications such as the minimum credit score and the USDA income limit.
  • USDA Direct Loans: This mortgage is issued directly by the USDA state office. Direct loans are geared towards low and very low-income families who need assistance purchasing affordable homes. Note that there can be additional subsidies and other benefits granted to qualified borrowers. The program also favors disabled and elderly borrowers going through financial hardship. To qualify, applicants must also meet the required USDA income limit. USDA direct loans are offered for single-family housing and multi-family housing.
  • USDA Home Improvement Loans and Grants: These loans were specifically made for underprivileged borrowers who need home repair and renovation assistance. If you are eligible for a USDA home repair loan, you can fix your old home and address safety issues. While some of these loans are made with a local lender, others are awarded as cash grants to finance home improvement projects. A qualified borrower can combine a home repair loan and grant to receive up to $27,500 of home improvement financing.

USDA loans are only granted for primary residences. This means borrowers must be living in their house. These cannot be used for investment property or vacation homes. The USDA loan program also offers refinancing options to current borrowers with USDA guaranteed loans and direct loans.

Understanding How USDA Guaranteed Loans Work

The USDA guaranteed loan program specifically caters to low to moderate-income homebuyers searching for affordable housing in eligible rural areas. The program aims to improve rural development by offering financing to qualified borrowers. USDA loan borrowers can buy, build, reconstruct, or relocate their dwelling as long as it’s within an approved USDA rural location.

USDA loans come with relaxed credit standards compared to conventional mortgages. If your income and credit score does not meet conventional loan standards, you may qualify for a USDA loan. And unlike traditional conventional loans, USDA loans come with lower interest rates and a zero-down payment option for borrowers. Thus, homebuyers with limited funds do not have to make a down payment. However, consider making a small down payment to help reduce your monthly payments and increase your overall mortgage savings.

USDA Loans During the COVID-19 Crisis

Borrowers have a good chance of securing a USDA loan if they’re coping with reduced income, but have maintained a good credit record. When the COVID-19 pandemic caused widespread unemployment, many Americans had trouble making mortgage payments from April to July 2020. Despite the economic crisis, the USDA reported that mortgage applications increased by around 53% in June 2020 compared to June 2019.

 

USDA guaranteed loans can only be taken as 30-year fixed-rate mortgages, which means there are no adjustable-rate options. These are only offered as single family homes and cannot be used for vacation houses, rental properties, or any income-generating property. USDA guaranteed loans can only be used for houses that do not exceed 2,000 square feet in size. Eligible homes may have a barn or storage area for farming implements. However, it should not be used for any commercial purposes. Apartments and condominium units may also be approved, provided that the property is located in an eligible USDA area.

Furthermore, USDA loans do not come with prepayment penalty fees unlike many conventional loans. This means you don’t have to worry about costly charges if you want to pay off your loan sooner. The program also allows you to refinance your current guaranteed loan if you want to secure a better rate and term. But for those who intend to tap their home equity, USDA loans currently do not offer cash-out refinance options.

You may obtain a USDA loan with low income, even if you do not qualify for a conventional mortgage. For those who put homebuying off because of the economic crisis, USDA home financing can help get your home ownership plans back on track.

Take Note of Mortgage Insurance

USDA loans charge mortgage insurance to protect the lender in case a borrower defaults on their loan. This mortgage insurance premium (MIP) comes in the form of a USDA guarantee fee, which is usually required for the lifetime of the loan. Borrowers who pay at least 10% down can remove this fee within 11 years. USDA insurance premiums are lower compared to FHA loan MIP fees (1.75% for upfront MIP and 0.85% annual MIP).

MIP for USDA loans comes in two fees: the upfront guarantee fee and the annual guarantee fee. The last time these fees were updated were in September 1, 2016. After this announcement, the USDA reduced the upfront guarantee fee from 2.75% to 1%. They also reduced the annual guarantee fee from 0.5% to 0.35%.

For example, if your loan amount is $250,000, your upfront guarantee fee will be $2,500. For the annual guarantee fee, if your loan balance has decreased to $230,000, the annual guarantee fee will be $805 ($67.08 per month). This means that as your loan decreases each year, so does your annual guarantee fee.

 

On the other hand, conventional loans charge private mortgage insurance (PMI) when a borrower pays below 20% down on their home’s value. This can cost around 0.25% to 2% of your loan amount per year. But unlike MIP, PMI is charged for a limited time, which is canceled once your mortgage balance reaches 78%.

Qualifying for A USDA Guaranteed Loan

Documents, keys and house model.

The USDA program prioritizes borrowers with limited income who satisfy specific qualifying standards. These requirements include the right area, credit score, income range, and debt-to-income ratio. Take note of these factors before applying for a USDA guaranteed loan.

Selecting the Right Location

Borrowers can only choose a home within an approved USDA rural location. The USDA characterizes rural areas as communities, towns, and even small cities with a population below 20,000 inhabitants. These places are usually in need of financing options that cater to low and average income households. In some cases, the USDA may make exceptions by approving areas with up to 35,000 people. On the other hand, urban places are defined as areas inhabited by 50,000 residents or more.

Before 2015, more than 90% of land in the U.S. qualified for USDA home financing. Over the years, increasing populations have made it more difficult for people to find eligible USDA rural areas for residential properties. But depending on the location, some USDA approved areas can be suburbs. Others may be extended sections of small cities that’s a ways away from metro areas. The area restriction may be discouraging. But if you’re determined to move away from the city, especially if you’ve found work that allows you to telecommute, taking a USDA loan is worth it.

Verify Your Area

To check if your preferred location is eligible, visit the USDA property eligibility map. It’s also a useful tool to search for feasible locations outside of busy metropolitan areas. Just enter the address or pin the location on the map. Areas in gray and green indicate eligible areas, while regions highlighted in yellow are cities that do not qualify as USDA rural locations.

 

Check Your Credit Score

Most USDA-sponsored lenders approve a minimum credit score of 640. This is the required credit score that allows borrowers to apply in the USDA’s automated writing system. If you meet this requirement, especially if your documents are complete, you’ll receive prompt processing of your application.

On the other hand, USDA-sponsored lenders may also accept borrowers with a lower credit score of 620. But this entails manual underwriting, which means your application will take much longer to process. Note that problems in your credit record such as missed payments and unsettled debts may cause further processing delay.

Meanwhile, conventional lenders usually prefer borrowers with a credit score of 680. Though lenders may sometimes approve a lower credit score of 640, these borrowers are assigned much higher interest rates. If you want to obtain more competitive rates, aim for a credit score of 700 and above.

The higher credit score requirement may make it harder for some borrowers to secure a conventional loan. When this happens, they can opt for a USDA loan, provided their property is within a USDA rural area.

Improve Your Credit Score

Before you apply for any loan, be sure to review your credit report. You can request a free copy of your credit report at AnnualCreditReport.com. Borrowers are entitled to get a free copy every 12 months. Check your credit report for errors and financial issues you need to settle.

Paying off large debts, maintaining a low credit card balance, and paying bills on time will help raise your credit rating. If you find any incorrect information on your credit report, such as the wrong billing address or unrecorded payments, make sure to dispute errors with your credit bureau. Doing so will also help improve your credit score.

 

Debt-to-Income Ratio (DTI)

Expect lenders to review your debt-to-income ratio (DTI) when you apply for a mortgage. DTI ratio is a percentage that measures your monthly debts with your gross monthly income. Having a low DTI ratio is an indication that you have ample income to afford a new loan. This decreases you risk of defaulting on your mortgage, which makes you a prime candidate for loan approval. In contrast, a high DTI ratio means you do not have adequate income to afford consistent mortgage payments. To reduce your DTI ratio, you should work on paying down your outstanding debts.

Two Main Types of DTI Ratio

Front-end DTI: This is the percentage of your income that pays for your mortgage and housing-related expenses. It includes property taxes, mortgage insurance, homeowner’s association dues, etc. The required front-end DTI for USDA loans should not exceed 29%.

Back-end DTI: This percentage includes your front-end DTI expenses together with all your other loan obligations. It includes credit card debts, auto loans, students loans, personal loans, etc. To be eligible for a USDA loan, your back-end DTI should not be over 41%.

In some cases, note that a USDA-sponsored lender may increase your DTI limit if your credit score is above 680.

 

As for conventional loans, the front-end DTI limit is 28%, while the back-end DTI limit is ideally 36%. Many conventional lenders impose a maximum back-end DTI of 43%. However, depending on compensating factors such as student loans, conventional lenders may accept a back-end DTI ratio of up to 50%.

Eligible Income Limits

Aspiring USDA guaranteed loan borrowers must satisfy the required income limit. The program only grants loans for borrowers with moderate income, which is defined as no more than 115% of the U.S. median family income, or 115% of the average of the state-wide and state non-metro median family incomes, or 115/80ths of the area's low-income limit. The limits are dependent on local economic conditions as well as the size of the borrower’s household.

The household income is determined by adding the borrower’s income with their family member’s income. Even if a working member of your household does not share your family name, their income is included in the computation. For instance, if all of you are working adults, the calculation will simply add all of your incomes. The loan limit in an area is the same for a 1 to 4 person household. This is set to a higher range if your home has 5 to 8 people. If your home has more than 8 people, the calculation adds 8% of a 4-person limit for each additional member.

The USDA guaranteed income limit varies depending on the county and state. To give you an idea, the following chart shows examples of moderate income limits from a few areas as of May 2020:

Area1 – 4 Person Limit5 – 8 Person Limit
Jonesboro, AR MSA$90,300$119,200
Colorado Springs, CO MSA$93,850$123,900
Rockland County, NY HUD Metro FMR Area$130,750$172,600
Seattle-Tacoma-Bellevue, WA MSA$140,650$185,650
Santa Maria-Santa Barbara, CA MSA$155,850$205,700

To know the specific income limits in your location, refer to the USDA income limits page.

You are eligible for a USDA guaranteed loan if your household income is below or equal to 115% of the median household income. To understand how this works, let’s suppose the income limit in your area for a 1 to 4 person household is $90,300 per year. This means you can qualify for a USDA loan with an annual income of $103,845 or below. To determine this income limit, we took 15% of $90,300, which is $13,545. Then, we added this value to $90,300, which amounted to $103,845.

Gather Required Documents

Be ready to submit financial documentation for your application. USDA loans ask for proof of income, which should show financial records for the last 2 years. You’re also expected to submit information about your assets and debt obligations.

USDA lenders watch out for questionable credit records. As a rule, your accounts should not be sent to collections in the past 12 months. This can happen if you’ve fallen behind on payments such as your credit card bill. It also causes a significant reduction on your credit score. When your account is converted to collections, it can take around 7 years for that information to disappear from your credit report. This makes it more difficult to obtain loans in the future, so avoid it at all costs.

However, there can be exceptions if you faced emergencies such as an illness or accident. If you can prove you were affected by a temporary external event out of your control (ex. Enforced lockdowns during the COVID-19 pandemic, temporary suspension of work, etc.), and have since recovered your finances, you can still qualify for a USDA loan.

Gather the following documents for your USDA loan application:

  • Account statements showing records of financial obligations
  • Proof of U.S. citizenship or permanent residency
  • Or proof of non-citizen national status or alien status
  • W-2 tax returns and pay slips in the last 2 years

The following table compiles the differences between USDA guaranteed loans and conventional mortgages:

RequirementsUSDA Guaranteed LoansConventional Mortgages
AreaShould be an approved USDA rural areaDoes not impose area requirements
Credit ScoreIdeally 640 and up
May approve 620
Usually approves 680 and above
700 and above gets you competitive rates
DTI RatioFront-end DTI limit: 29%
Back-end DTI limit:  41%
Front-end DTI limit: 28%
Back-end DTI limit: Usually 43%
Can be up to 50% with compensating factors
Income LimitHousehold income cannot be over 115% of the median US household income No required income limits
Down PaymentDown payment not required, offers 100% financing
10% down removes MIP within 11 years
Paying 20% down gets rid of PMI
Around 10% is the usual down payment
3% is the minimum for a 97-3 loan
CostsComes with MIP:
1% upfront guarantee fee
0.35% annual guarantee fee
No prepayment penalty
PMI required if down payment is less than 20%
PMI is 0.25% to 2% of your loan annually
Removed once your loan-to-value ratio reaches 78%
May impose prepayment penalty

Consider the Disadvantages

Man walking over the country.

On the surface, obtaining a home loan with a zero-down payment option seems like a great deal. The lenient qualifying standards also work to your advantage, especially if you don’t have a high credit score. However, besides the benefits, don’t forget the drawbacks.

Be practical and consider the location. Can you really afford to live away from the city? If your work requires frequent drives to commercial areas, this option will not work for you. Just think of the time, energy, and money you’ll spend traveling. However, if you get assigned to work outside the city, a USDA loan is a good fit. And if you’ve found a flexible job that allows you to telecommute, it eliminates the need to go to the city.

Next, you must fall within the required income. If your household exceeds income eligibility limits in your area, you cannot take a USDA loan. You’ll still need to improve your credit score and other requirements to qualify for a conventional loan. Furthermore, if you do not make a down payment, you must pay mortgage insurance premium (MIP) for the entire life of the loan. While a zero-down option sounds affordable, it means higher monthly mortgage payments and costlier interest charges. Thus, it’s better to make a small down payment to maximize your mortgage savings.

Since USDA loans are sponsored by the government, these loans must follow minimum property safety standards. For this reason, it might be harder to get an old house (any property that needs major fixes) approved if you have a strict appraiser. Finally, you can only use USDA loans for primary residences. You cannot obtain financing for rental property or vacation houses.

Here’s a summary listing the pros and cons of USDA loans:

ProsCons
Zero-down payment option, 100% financingOnly eligible in USDA rural areas
Lower rates compared to conventional loansIncome limits may prevent you from qualifying
Relaxed qualifying standards compared to conventional mortgagesIf you do not make a down payment, MIP is required for the entire life of the loan
Does not require cash reservesAdheres to strict appraisal standards for safety
Fixer-uppers are harder to approve
Allows borrowers to finance closing costs and repairs into their loanCan only be used to purchase a primary residence

How Down Payments Impact Mortgage Costs

USDA loans are appealing to borrowers because no down payment is required. But before you fall for the zero-down option, you should understand how down payments affect the cost of your mortgage. Let’s review the example below.

Suppose you’re buying a house priced at $250,000, and you got a 30-year fixed rate USDA loan at 2.94% APR. Let’s compare the cost of your mortgage payments, guarantee fee, and total interest charges if you pay zero-down, 5% down, and 10% down on your mortgage. See the results below.

30-Year Fixed-rate Mortgage
Home Price: $250,000
Rate (APR): 2.94%

Loan DetailsZero Down5% Down ($12,500)10% Down ($25,000)
Loan Amount$250,000$237,500$225,000
Upfront Guarantee Fee$2,500$2,375$2,250
Monthly Principal & Interest Payment$1,045.94$993.64$941.34
Total Interest Costs$126,537.49$120,210.62$113,883.74

This calculation did not finance the upfront guarantee fee.

The results show that making a down payment reduces your loan amount and decreases your upfront guarantee fee. If you do not make a down payment, your loan amount will remain at $250,000 and your upfront guarantee fee will be $2,500. However, if you pay 5% down, this reduces your loan amount to $237,500, and decreases the upfront guarantee fee to $2,375. Likewise, 10% down decreases the loan amount to $225,000 and reduces the upfront guarantee fee to $2,250.

As for monthly principal and interest payments, with zero-down, you’ll spend $1,045.94 per month. But with 5% down, it reduces your monthly principal and interest payment to $993.64. And if you make 10% down, your principal and interest payment will decrease to $941.34 per month. Thus, the higher the down payment, the lower your monthly principal and interest payments. Compared to zero-down, you’ll save $104.60 per month with 10% down.

Finally, you’ll notice a big difference in savings with total interest costs. With zero-down, your interest charges amount to $126,537.49. However, if you pay 5% down, it reduces your total interest costs to $120,210.62. And if you pay 10% down, your overall interest charges decrease to $113,883.74. If you pay 10% down, you’ll save $12,653.75 on total interest on your mortgage compared to no down payment at all.

Though a down payment is not required, it’s worth paying a small amount to maximize interest savings. Even with 5% down, this can help reduce your monthly principal and interest payments. You’ll also save a considerable sum on interest charges. Even if you have limited funds, save up for a small down payment when you get a USDA loan.

In Summary

Family in the countryside.

Low to average income homebuyers searching for homes outside the city can take advantage of USDA loans. This financing option comes with market-low rates and lenient credit qualifications, making them more accessible for borrowers. It’s an affordable option which also comes with zero-down payment. USDA guaranteed loans are perfect for homebuyers with low income but have maintained a good credit history.

Besides the benefits, be mindful of the drawbacks. The area restriction may keep you from finding a viable location. For people who need to maintain jobs in cities, it’s not the most practical option. But if you have a flexible setup that allows you to work from home, a USDA loan might work for you. Furthermore, you must meet income qualifications to be eligible for the loan. If your income exceeds 115% of the median family income in your area, your loan will not be approved.

USDA loans also require mortgage insurance premium (MIP), which is an extra charge that protects lenders in case you fail to make payments. MIP is required for the entire life of the loan if you do not make any down payment. For this reason, consider making a down payment to increase your mortgage savings. Save at least 10% down to remove the extra cost of MIP within 11 years. Overall, the USDA program can help you attain homeownership with a more affordable deal.