Do USDA Loans Require a Down Payment?

USDA loans are one of the few mortgage options offering a $0 down payment, making homeownership more accessible for low- to moderate-income families.

Saving for a down payment is one of the biggest hurdles for first-time homebuyers. The median home sale price in Q1 of 2025 was $416,900, according to data from the Federal Reserve Bank of St. Louis. In 2024, the median down payment on a home was 18% for all home buyers, according to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers.

At that rate, the down payment for a median-priced home would total more than $75,000. With a USDA loan, you can skip that step entirely and still qualify for affordable financing in eligible rural and suburban areas.

USDA Loan Types and Down Payment Requirements

There are two main types of USDA home loans, both backed by the U.S. Department of Agriculture. There are a few key differences between the two:

• USDA Guaranteed Loan: Offered through approved private lenders and designed for moderate-income buyers, it’s the most common USDA loan and requires no down payment.
• USDA Direct Loan: Issued directly by the USDA for low- and very-low-income applicants, it also requires no down payment and may offer subsidized interest rates. To qualify, applicants must also be without safe and sanitary housing.

While USDA loans do not require a down payment, some borrowers still make one voluntarily. A down payment can reduce your monthly payment, lower your total interest over time, or strengthen your application.

What About Closing Costs?

While USDA loans don’t require a down payment, buyers are still responsible for closing costs, typically ranging from 2% to 5% of the home’s purchase price. Fortunately, there are several ways to cover these costs:

• Rolled into the loan (if the appraisal allows): If the home appraises for more than the purchase price, you may be able to include some or all of your closing costs in the loan amount. This is only allowed up to the appraised value, making it a helpful option when there's room between the sale price and appraisal.
• Paid by the seller as a concession: You can negotiate with the seller to cover part or all of your closing costs. USDA guidelines allow sellers to contribute up to 6% of the sale price toward buyer closing expenses, which can significantly reduce your upfront cost.
• Covered by lender credits or gift funds: Some lenders offer credits in exchange for a slightly higher interest rate, helping offset closing costs. Additionally, USDA allows gift funds from eligible sources (like a family member) to be used for closing costs, reducing the amount you need to bring to the table.

USDA Loan Eligibility Requirements

To qualify for a USDA loan, you’ll need to meet certain eligibility guidelines:

• Income limits: Vary based on household size and location. You can check current limits and see if you qualify using the USDA Income Eligibility Tool.
• Location: Homes must be located in USDA-designated rural or suburban areas. Use the USDA Property Eligibility Map to check.
• Borrower qualifications: The USDA doesn’t require a minimum credit score for borrowers, but individual lenders usually do. Most lenders require a credit score of 640 or higher, stable income, and a manageable debt-to-income (DTI) ratio.

Understanding the USDA Loan Calculator

Want to know how much home you can afford with a USDA loan? Try our USDA Mortgage Calculator to estimate your monthly payment based on:

• Purchase price
• Interest rate
• Property taxes and insurance
• Loan term and potential USDA guarantee fees

The 20% Down Payment Myth

Many first-time buyers assume they need 20% down to buy a home. Here’s where that idea comes from:

• Historical standard: In the early days of mortgage lending, 20% down was the norm.
• PMI and conventional loans: Private mortgage insurance (PMI), introduced in the 1950s, made lower down payments possible — but it’s only required for conventional loans with less than 20% down. FHA loans also require mortgage insurance, and all FHA borrowers must pay a mortgage insurance premium (MIP).
• USDA loans are different: There’s no PMI with USDA loans. Instead, USDA loans have a lower-cost upfront and annual guarantee fee and don’t require a down payment.

Pros and Cons of Buying With No Money Down

USDA loans allow you to make no down payment, but you can choose to put some money down on the purchase. Choosing not to make a USDA loan down payment has tradeoffs. Here’s what to consider:

Pros

• Buy a home sooner
• Keep savings for moving, emergencies, or home improvements
• Access homeownership without a large upfront investment

Cons

• Build equity more slowly
• Slightly higher monthly payments
• Greater risk of being underwater if home values drop

For many Americans, a down payment means the difference between buying a home now, in 5 years, or, in some cases, not at all. In that light, the benefits of the USDA loan down payment options may outweigh the risks.

Real-World Comparison: USDA vs. Other Loan Types

The USDA $0 down loan program makes homeownership possible for many people who might otherwise get stuck renting. But there are pros and cons to USDA loans. Let's see how a USDA down payment stacks up to other available loan programs.

For this example, let's assume our borrower is purchasing a $250,000 home:

Conventional Loans

Conventional loans used to require a 20% down payment, but in recent years, a variety of products have gained popularity. Today, 5% down conventional loans are increasingly common. Some lenders offer conventional loans with down payment options as low as 3%. Low down payment conventional loans may require higher credit scores and other compensating factors.

FHA Loans

FHA loans require a minimum down payment of at least 3.5% if your credit score is 580 or higher. This low down payment program is a good option for some homebuyers, but comes with a big drawback. FHA loans now require annual mortgage insurance premiums for the life of the loan, regardless of your equity. This ongoing expense can make a big dent in your monthly housing budget.

VA Loans

The VA loan program is the only other $0 down loan program on the market. VA loans are available to veterans, active duty servicemembers, and select others who meet the VA loan program's service requirements. VA loans come with an upfront funding fee that eligible borrowers typically finance into the loan.

Using Gift Funds with a USDA Loan

Even though no USDA loan down payment is required, you can still use gift funds if you choose to put money down or help cover closing costs. The USDA allows gifts from family members or other approved sources, making it easier to customize your loan strategy.

The bottom line is that USDA loans make homeownership possible without the traditional down payment barrier. With flexible terms, lower upfront costs, and affordable financing, USDA loans are a powerful tool for rural and suburban homebuyers.

Ready to explore your options? Use our USDA Loan Calculator to see how much home you can afford today.