As a top USDA lender licensed in 48 states†, Neighbors Bank has helped thousands of borrowers navigate the USDA loan process. If your USDA loan was denied, you're not alone, and there are clear next steps you can take to move forward.
A denial doesn’t mean you have to give up. It doesn’t prevent you from reapplying. But before you try again, it’s crucial to identify the reason(s) your application was denied in the first place and what you can do about it.
How often does the USDA deny loans?
The denial rate for USDA loans varies by year. Based on the latest HMDA Data, the denial rate for USDA loans was about 14.56% nationwide. However, this is only half the denial rate of conventional loans, which averaged a denial rate of 36% in 2024.
Can your USDA loan be denied after pre-approval?
Yes, it's possible for a USDA loan to be denied even after you've received pre-approval. It’s also possible for a USDA loan to get denied at closing.
Getting a USDA mortgage includes many stages of checks and verifications, both of your information and the home you intend to buy. The final loan approval comes only after the underwriting process is complete, and all borrower and property conditions are satisfactorily met. At any point during this process, the lender has the right to change their mind.
At Neighbors Bank, the full USDA loan process typically takes 30–60 days. Our team keeps you informed every step of the way.
7 Common Reasons USDA Loans Get Denied
Whether it’s the borrower or the property itself, there are several reasons a USDA loan may get denied, including:
1. Your Debt-to-Income Ratio is Too High
Your debt-to-income (DTI) ratio compares your monthly debt payments against your gross monthly income. If your DTI ratio is too high, lenders may question your ability to manage additional loan payments. In addition, if your loan does not receive approval through the automated underwriting system, USDA guidelines set a maximum cap on your DTI that you must meet to qualify.
Neighborly Advice
Consider paying down existing debts, increasing your income, or applying with a co-borrower. Speak with a Neighbors Bank loan expert to understand what DTI flexibility may apply to your situation.
2. USDA Income Limitations
USDA loans are intended for individuals with low to moderate income. If you exceed the USDA's set income limits for your area and household size, you won't qualify. As of 2025, the USDA income limits in most areas are:
$119,850 for households with 1–4 members
$158,250 for households with 5–8 members
Neighborly Advice
Double-check USDA income limits for your area and household size. If you exceed the cap, consider an FHA or conventional loan instead.
3. Property Location Eligibility
USDA loans are specifically for properties that the USDA has designated as “rural.” If the property isn’t in an eligible area, it won't qualify for a USDA loan. You can use this free property eligibility map to check if an address meets qualifications.
If it doesn’t, you may need to broaden your home search or consider other loan types better suited for suburban/urban properties.
Credit History and Score
While USDA loans have more lenient credit requirements compared to conventional loans, a very low credit score can lead to denial.
While the USDA does not set a minimum credit score requirement, most lenders do.
Neighbors Bank typically requires a minimum credit score of 620 for USDA guaranteed loans. Other lenders may have similar requirements, with many setting the bar between 600 and 640.
USDA loans also have mandatory waiting periods following bankruptcy, foreclosure, or short sale. If you apply before the period, you likely will not qualify.
Neighborly Advice
Order a free credit report and dispute any errors you find. Focus on paying down debts, avoiding new credit inquiries, and bringing delinquent accounts current before reapplying.
4. Employment Stability
Lenders typically require a stable work history, usually two years with the same employer or in the same line of work. While every situation is unique, understanding the USDA loan employment requirements can help you see how lenders evaluate job history and income stability.
Neighborly Advice
If you’ve recently changed jobs but stayed in the same field, explain this clearly to your lender. Waiting a few months may help establish income consistency.
5. Insufficient Savings
While USDA loans do not require a down payment, having little to no savings can be a concern for lenders. They often want to see some financial cushion to cover closing costs, homeowner's insurance and property taxes.
Neighborly Advice
Create a budget and set a target for emergency savings. Explore local or state down payment and closing cost assistance programs that may boost your reserves.
6. Appraisal Issues
All homes purchased with a USDA loan must undergo a USDA appraisal, which determines the property’s value and evaluates it for livability and functionality standards. The property must appraise for the sale price or higher. If the appraisal comes in lower, it can lead to loan denial unless adjustments are made to the sale price or the borrower can cover the difference.
Neighborly Advice
Before making an offer, review the USDA minimum property requirements to get a general idea of what appraisers look for. If the appraisal comes in low, try negotiating the price, covering the gap yourself, or disputing the valuation if you believe it’s inaccurate.
7. Property Intended Use
As outlined by the occupancy requirements, USDA loans may be used for primary residences only. If the property is intended as an investment property, income-producing property, or a vacation home, the loan will be denied.
Neighborly Advice
USDA loans are for primary residences only. If your goal is to buy a vacation or investment property, explore financing options like conventional loans or vacation property loans.
What to Do if Your USDA Loan Application Gets Denied
If your loan application is denied, lenders must send you an adverse action notice, which details the reason(s) for your application’s denial. This notice can be written, electronic or verbal, depending on the circumstances.
At Neighbors Bank, we carefully walk through your adverse action notice and help create a plan for reapplying. Many borrowers who are initially denied go on to get approved with our team’s support. Also, if a USDA loan isn’t currently the right fit, we’ll also help you explore other loan options that may better match your financial situation or homeownership goals.
Whether it's improving your credit score, stabilizing your income or finding a property that meets USDA guidelines, knowing what went wrong is the first step in making successful future loan applications.
If the decision was based in whole or in part on information from your credit report, the lender must provide the name, address, and phone number of the credit bureau that supplied the report. You are entitled to a free copy of your credit report from that bureau if you request it within 60 days of receiving the denial notice. The notice should also inform you of your right to dispute the accuracy or completeness of any information in your credit report that the lender used in their decision.
If you believe the loan denial was unfair or incorrect, or if you need further clarification on the reasons for denial, you can reach out to the lender for more information or consult with a legal professional for guidance.
†According to the U.S. Department of Agriculture (Source PDF)
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.
