USDA loans, explained simply

Key takeaways

• $0 down, 30-year fixed.
• 1% upfront fee + 0.35% annual fee.
• Location and income both must qualify.
• Usually 30 to 45 days to close.

How does a USDA loan work, in plain English?

A USDA guaranteed loan is a 30-year fixed mortgage from a regular lender, backed by the U.S. Department of Agriculture so the lender can offer it with no down payment.

• $0 down: you can finance 100% of the price.
• Location: the home must be in a USDA-eligible area (most rural and small-town Mississippi qualifies).
• Income: your total household income must be at or under the limit for your county.
• Credit: most lenders look for a score around 640 for automated approval; lower can be possible with manual review.
• Fees: a 1% upfront guarantee fee (can be rolled into the loan) and a 0.35% annual fee paid monthly.
• Use: it must be your primary home, not a rental or vacation home.

What does a USDA loan cost?

No down payment doesn't mean no cash. Plan for earnest money, inspections, appraisal and closing costs. Sellers can contribute toward closing costs if negotiated.

How long does it take?

Most USDA purchases close in about 30 to 45 days because the file is reviewed by the lender and then by USDA.

Common mistakes

• Falling in love with a home that's inside an ineligible city limit (Tupelo, Starkville, Columbus)
• Counting only your own income (USDA counts every adult in the household)
• Opening new credit before closing
• Picking a home that needs major repairs (it must appraise safe and sound)

Frequently asked questions