Buy a Home
If you are setting your sights on purchasing a home in a rural or suburban community, a USDA loan provides an accessible path to homeownership. Backed by the U.S. Department of Agriculture, these loans are designed to help lower-to-moderate income families achieve the dream of owning a primary residence while benefitting from significant financial advantages.
With the possibility of no down payment and more lenient qualifying ratios, USDA loans make it easier for many families to transition from renting to owning.
There are several loan options available to you for buying a home. Mortgage loans often differ depending on the requirements to qualify and the terms and conditions of each loan type, including the loan’s length, the interest rate and the minimum down payment.
A USDA mortgage loan (also known as the Rural Development Loan) is backed by the federal government through the U.S. Department of Agriculture. This program is specifically designed to improve the economy and quality of life in rural America by providing affordable homeownership opportunities.
The protection this backing provides allows lenders to offer mortgage loans with unique benefits—most notably 100% financing—which means no down payment is required. Additionally, USDA loans often feature competitive interest rates—frequently lower than conventional mortgages—and more flexible debt-to-income requirements. These features make USDA loans a powerful tool for those looking to buy, build or even repair a home in eligible areas.
Take a look at this comparison of a USDA mortgage loan with two popular alternatives:
| Feature | USDA Loan | Conventional Loan | FHA Loan |
|---|---|---|---|
| Down Payment | None required | Minimum: 3% | Minimum: 3.5% |
| PMI |
Not required However, there is an up-front, one-time 1% guarantee fee and an annual fee of 0.35% of the loan balance. |
Required unless down payment greater than 20% (or 20% equity achieved). | Mandatory |
| Credit Score | Minimum: 580 | Minimum: 620 | Minimum: 580 |
| DTI | At or below 50% | At or below 50% | At or below 50% |
| Distinctions | No down payment, possibility of lower interest rates; rural or small town living | Most popular option among all homebuyers, favors strong credit, higher credit scores; multiple options | Less restrictive credit score and down payment minimums, along with competitve interest rates |
Both are government-backed, but they have some important distinctions. For instance, FHA loans require a 3.5% down payment and can be used anywhere. On the other hand, USDA loans offer 0% down payment but are restricted to specific geographic areas and have household income limits that FHA loans do not.
Unlike conventional loans which require private mortgage insurance (PMI) if the buyer puts less than 20% down, all USDA Single-Family Housing Guaranteed Loans, to name one specific USDA product, replace PMI with a one-time charge to protect the lender should the borrower default. This charge is typically 1% of the total loan amount and can be paid out of pocket or rolled into the mortgage, and it is often lower than the insurance costs associated with other loan types.
Yes! Beyond just purchasing an existing home, USDA funds can be used to build a new residence or even to make necessary repairs and improvements to a home you want to buy, provided the property is in an eligible zone.
The USDA defines “rural” quite broadly. Many small towns and suburban outskirts qualify. Our loan officers can help you quickly check the USDA eligibility map to see if the home you’re interested in meets the requirements.
As with any mortgage, you’ll account for loan origination fees, appraisal costs and title insurance. These typically range from 2-4% of the loan total. In many cases, the USDA allows sellers to contribute toward these costs, further reducing the amount of cash you need at the closing table.
Are you interested in living somewhere slightly “off the beaten path?”
Contact a Compass Mortgage loan officer right away to see
if a USDA loan could be the way to go for you.