Buying your first home is an exciting milestone, but navigating mortgage options can feel overwhelming. One financing option worth considering is the USDA home loan program, which helps make homeownership more accessible for qualified buyers.
With features like no down payment and flexible qualification guidelines, USDA loans can be an especially helpful option for first-time homebuyers with limited savings or a shorter credit history.
What is a USDA Loan?
A USDA loan is a government-backed mortgage program overseen by the U.S. Department of Agriculture that helps eligible buyers purchase homes in qualifying rural and suburban areas. By backing these loans, the USDA reduces the lender's risk, making it possible for borrowers to access more affordable loan terms than many conventional mortgages.
There are two types of USDA home loans:
USDA Guaranteed Loans, which are issued by approved private lenders and backed by the USDA
USDA Direct Loans, which are issued directly by the USDA for low- to very low-income borrowers
Each program has its own income limits, eligibility requirements, and application process. You can compare the two USDA loan options in more detail here: USDA guaranteed vs. USDA direct loans.
Note: This article focuses on USDA guaranteed loans, which are issued by approved lenders like Neighbors Bank.
Are USDA Loans Only For First-Time Buyers?
No, USDA loans are not limited to first-time homebuyers. Both USDA loan programs are open to anyone who meets the eligibility requirements set by the USDA. Borrowers who apply for a USDA guaranteed loan must also meet guidelines set by individual mortgage lenders.
For first-time homebuyers who often face challenges with savings or credit history, USDA loans can be one of the most affordable paths to homeownership. However, repeat buyers who qualify can also benefit from the program.
How to Qualify for a USDA Loan as a First-Time Homebuyer
When it comes to qualifying for a USDA loan, there are no specific requirements for first-time homebuyers. All borrowers, regardless of their homeownership history, must meet the following criteria:
| Requirement | Criteria |
|---|---|
| Property eligibility | The property must be located in a designated rural area and meet USDA minimum property requirements. |
| Financial qualification | The applicant must meet the financial standards set by their chosen USDA lender. |
| Income limits | The applicant's household income must be below the USDA income limit for their location. |
| Occupancy | The property must serve as the applicant’s primary residence and satisfy other USDA occupancy requirements. |
| Citizenship | The applicant must be a U.S. citizen, non-citizen national or qualified alien. |
For more information on USDA loans and their requirements, check out our Guide to USDA Loans.
Benefits of USDA Loans for First-Time Homebuyers
$0 Down Payment
Allows borrowers to have a home without saving for years for a down payment, making homeownership more accessible sooner.
Low Fixed Interest Rates
USDA loans offer competitive fixed rates, typically lower than conventional loans, which help keep monthly payments stable and predictable.
Flexible Credit Guidelines
USDA loans are more forgiving of limited or less-established credit histories compared to conventional loans. Neighbors Bank typically requires a minimum 620 credit score.
30-Year Loan Terms
Longer repayment terms help keep monthly payments affordable for first-time homebuyers.
USDA Government Backing
The USDA guarantee reduces lender risk, making lenders more willing to approve qualified buyers who may not fit traditional lending profiles.
Seller Concessions Allowed
USDA loans allow seller concessions up to 6% of the loan’s price toward closing costs, which can significantly reduce the amount of cash buyers need to bring to closing.
Gift Funds Accepted
Borrowers can use gift funds from eligible sources, such as family members, to help cover closing costs or other upfront expenses, making it easier for first-time buyers to move forward.
USDA Loan First-Time Homebuyer FAQs
Do USDA loans require homebuyer education?
No, USDA loans do not require homebuyer education classes, though some lenders may recommend them.
Do USDA loans require PMI?
No, USDA loans do not require private mortgage insurance (PMI). Instead, they charge a USDA guarantee fee to help fund the program.
The guarantee fee includes a 1% upfront fee (typically rolled into the loan) and an annual fee of 0.35% of the loan balance. Unlike PMI on some conventional loans, the annual USDA guarantee fee lasts for the life of the loan unless the mortgage is refinanced or paid off.
Even though the fee does not drop off automatically, it is often less expensive than PMI, especially for borrowers with lower credit scores or smaller down payments.
How hard is it to get a USDA loan?
Many buyers find USDA loans easier to qualify for than conventional loans, thanks to their flexible credit requirements and no down payment requirement. However, the program’s property location and income limits can make it harder for some borrowers to qualify.
Neighborly Advice
If you’re considering a USDA loan, it’s a good idea to get prequalified or preapproved to ensure your household’s income is within the program requirements. After that step, you can use the USDA loan property eligibility map to ensure the listings you are looking at qualify. If you’re using a buyer’s agent, it’s also a good idea to let them know that you’re looking for USDA-eligible homes so they can check the property eligibility, too.
Next Steps
If you’re considering a USDA loan for your first home purchase, there are a few potential next steps to think about:
1. Work Toward Loan Preapproval
Preapproval is a crucial step in the USDA loan application process. It provides a clear understanding of your borrowing capacity and strengthens your position when making an offer on a home.
2. Explore Free USDA Loan Tools
Neighbors Bank offers valuable tools to help first-time homebuyers prepare for the USDA loan process. You can estimate your potential monthly payments using our USDA mortgage calculator.
3. Contact a USDA Mortgage Lender
Reach out to a knowledgeable USDA loan lender to determine if you qualify for a USDA loan. Neighbors Bank is a Top 3 USDA Lender. Our team of experts is here to answer questions, offer advice, and help kickstart your journey to your first home purchase.
Emily Kittle is an experienced underwriter with a strong background in risk assessment, training, and loan decision-making. She excels at solving complex mortgage challenges and guiding loans to closing using creativity and critical thinking.
