Supported and backed by the U.S. Department of Agriculture, USDA loans help make homeownership possible for thousands of families each year by offering low-interest, no-down-payment financing.
Whether you’re a first-time homebuyer or exploring your next move, these USDA loan questions and answers will help you feel confident about your options.
USDA Loan Basics FAQs
Before diving into eligibility and requirements, it helps to understand how USDA loans work. They are not conventional loans and include different types and guarantees depending on your financial situation.
What is a Rural Development (RD) loan?
A USDA Rural Development (RD) loan is a government-backed mortgage that helps individuals buy or construct homes in eligible rural areas. It’s part of the USDA Rural Development Guaranteed Housing Loan Program, which allows approved lenders to offer financing with no down payment.
Are USDA loans guaranteed by the federal government?
Yes, USDA Guaranteed Loans are backed by the federal government, which gives lenders more confidence to approve borrowers with limited credit history. This backing also allows USDA loans to offer benefits like lower mortgage insurance and no down payment.
What is a USDA Direct Loan?
A USDA Direct Loan is issued directly by the USDA itself. It’s designed for borrowers with very low and low incomes who might struggle to qualify elsewhere.
For instance, someone earning less than their county’s median income may qualify for subsidized interest rates through this option. The USDA Guaranteed Loan, by contrast, is offered through private lenders and insured by the USDA.
How is a USDA home loan different from other USDA funding?
A USDA home loan focuses on helping individuals or families buy, build, or repair a primary residence, while other USDA programs support community growth, such as improving infrastructure or helping small businesses.
Think of the home loan program as helping you secure a roof over your head, while the rest of the USDA’s efforts strengthen the community around it.
USDA Loan Eligibility FAQs
Eligibility determines whether you qualify for a USDA home loan, which depends on factors such as income, property location, and occupancy status. Check out our answers to the most common USDA loan questions and answers about qualification.
Who are USDA loans designed for?
USDA loans are made for individuals or families with low to moderate incomes who are purchasing a primary residence in USDA-eligible rural areas. For example, a single parent purchasing a modest home near the edge of a small city may qualify even if the area isn’t strictly “farmland.”
Do I qualify for a USDA home loan?
To qualify for a USDA home loan, you’ll need to meet several key requirements tied to your income, the property, and your overall financial profile. In general, you must:
Make sure you are within USDA income limits for your area.
Find a home in an eligible rural or suburban area.
Show stable income and employment history that supports repayment ability.
- Have an acceptable credit history. Neighbors Bank typically requires 620+.
Maintain a reasonable debt-to-income ratio, as outlined by lender guidelines.
Provide proof of U.S. citizenship or permanent residency.
How hard is it to get a USDA loan?
To be eligible for a USDA home loan, you must meet the USDA guidelines for income, property location, and primary residence use. While credit standards are typically more flexible than conventional loans, the added property and income restrictions can make it harder to qualify overall.
What credit score is required for a USDA loan?
The USDA itself doesn’t set a minimum credit score, but most lenders prefer a score of 640 or higher for automatic underwriting approval. Borrowers below that may still qualify through manual underwriting if they have consistent rent payments or additional savings as proof of financial stability.
Neighbors Bank typically requires a minimum credit score of 620.
How many times does the USDA pull your credit?
Lenders pull your credit once at application and again before closing to verify your profile hasn’t changed. If you’re shopping for loans, multiple USDA credit checks within 45 days count as one inquiry, allowing you to compare lenders without hurting your score.
USDA Rates & Payments FAQs
Understanding rates and payments helps you budget with confidence. USDA home loans are known for their fixed rates and affordable terms, and understanding how payments work can make a significant difference when planning for the long term.
Are USDA loans fixed-rate?
Yes, USDA home loans are fixed-rate 30-year mortgages. That means your interest rate and payment will stay the same from start to finish. For example, a borrower paying $1,250 each month today will continue to pay that amount 10 years later, making budgeting simple.
Do USDA loans require escrow?
Yes, USDA loans do require escrow accounts for property taxes and homeowners' insurance. Your lender collects these payments monthly and makes the annual payments on your behalf.
For example, if your yearly property tax is $1,800, your lender will divide that across 12 months ($150) and include it in your monthly mortgage payment.
Can you pay off a USDA loan early?
Yes, you can pay off your loan early without penalties. Some homeowners make small extra payments each month to shorten their loan term. However, if your loan includes direct payment assistance, be sure to check for potential subsidy recapture when requesting a payoff quote.
Want to see what your USDA payment could be? Try our USDA loan calculator.
What are USDA home loan guidelines on late payments?
USDA underwriting looks for a clean 12-month payment history with no serious delinquencies. Recent serious delinquencies can disqualify you, and lenders also verify your rent or previous mortgage payments to ensure reliability.
Does USDA allow cash back at closing?
Not typically. USDA loans prohibit cash back except for reimbursement of prepaid costs such as appraisal fees or earnest money deposits. For example, if you paid $500 upfront for an appraisal, you could receive that back at closing.
USDA Loan Selling and Refinancing FAQs
Selling or refinancing a USDA home loan is possible once you meet certain occupancy and loan conditions. The USDA program provides flexible options to adapt as your life or financial needs change.
Can you sell a USDA home?
USDA loans don’t require you to keep the home for a specific number of years. Once you own it, you’re free to sell whenever you choose.
Can you get a HELOC with a USDA loan?
No, you can’t get a home equity line of credit with a USDA loan because cash-out options aren’t permitted. To access your equity, you’d likely need to refinance into a conventional, FHA, or VA loan.
Can you refinance with a USDA loan?
Yes. The USDA loans have several refinancing options, including USDA Streamlined-Assist, USDA Non-Streamlined, and USDA Rate-and-Term Refinance. For example, if interest rates drop, refinancing could help you lower your monthly payments and overall loan costs. In order to obtain a USDA refinance loan, you must already have a USDA loan.
Multiple USDA Loan FAQs
Borrowers often ask whether they can have more than one USDA loan or reuse the program. Since these loans are intended for primary residences, only one can be active at a time, but you can apply again later once the previous loan is paid off.
Can you have two USDA loans?
Two active USDA loans are not possible. USDA loans are meant for a primary residence, so you must sell or refinance before applying for another.
How many times can you use a USDA loan?
You can use the program more than once, as long as your previous USDA loan is paid off or refinanced. So, if you sell your home in a rural area and later move to another eligible community, you can apply for a new USDA mortgage for your next residence.
How many USDA loans can I have at a time?
You can only have one USDA loan at a time. Once the property is sold or refinanced, you’re free to apply for another. This ensures that the program continues to serve homeowners who truly need affordable primary housing.
USDA Property Types and Use FAQs
The property you buy must meet certain standards to qualify for a USDA home loan. Homes need to be modest, safe, and located in eligible areas. The following answers clarify what types of homes and uses are permitted.
Does USDA allow 2-unit properties?
No, USDA loans are only available for single-family homes that meet the USDA’s minimum property requirements. Unfortunately, multi-unit properties are not eligible.
Can you buy a duplex with a USDA loan?
USDA loans do not permit multi-unit properties, investment properties, or vacation homes. These property types are not allowed under the USDA program.
Can I rent out my USDA-loan home?
USDA requires you to occupy the home as your primary residence. After establishing occupancy, you can rent it out if your circumstances change. Renting before establishing occupancy could be considered mortgage fraud.
Can I have a roommate with a USDA loan?
Definitely! A roommate’s name doesn’t have to be on the loan, though their income counts toward total household income caps, which can affect eligibility. This is common for couples or friends buying homes together.
Can I use my USDA loan to buy land?
Generally, no, unless you’re also financing a home on that land. The property must include a livable home or a plan to build one immediately through a USDA-approved construction loan.
Can I build with a USDA loan?
Yes, through the USDA Construction-to-Permanent loan program. This allows you to finance both land and building costs in a single loan. For instance, if you buy a plot in a qualifying area and hire a USDA-approved builder, the same loan will cover both the construction and mortgage phases.
While Neighbors Bank doesn’t currently offer USDA Construction-to-Permanent loans, we do provide FHA Construction-to-Permanent loans that work similarly by combining your build and long-term mortgage into one loan for buyers who meet FHA loan requirements.
USDA Spouse & Co-borrowers FAQs
Homeownership often involves more than one person, and USDA loans account for this. Whether you’re married, applying with a friend, or adding a co-borrower, these USDA loan questions and answers help clarify the rules.
Can I apply for a USDA loan without my spouse?
You can apply individually if your spouse has lower credit or doesn’t plan to be on the title. However, their income will still count toward household income unless you’ve been legally separated or living apart for over three months.
Can you have a co-borrower on a USDA loan?
Yes, co-borrowers are allowed on USDA loans as long as they live in the home and meet income and eligibility standards. For example, two siblings purchasing a home together can both be listed as co-borrowers if the property will serve as their primary residence.
Does USDA allow a non-occupant co-signer?
No, USDA loans do not permit a non-occupant co-signer.
What happens if I get married after a USDA loan?
Getting married after your USDA loan closes won’t affect your mortgage or cause penalties, as long as the home remains your primary residence. For future USDA applications, both incomes would count toward total household income and must be within 115% of the area’s median income to qualify.
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.
