First Time Homebuyers and USDA Loans

Ready to make the jump from renting or rooming with family to purchasing your first home? You can get a lot of bang for your buck with a USDA mortgage. Among first-time homeowner loans, it offers many benefits that other forms of financing don’t.

Let’s explore the key perks, compare a USDA loan to an FHA loan, take a closer look at requirements for first-time home buyers, and explore helpful tips on how to become a USDA first-time home buyer.

Why USDA Loans Are a Smart Choice for First-Time Homebuyers

The USDA loan has significant advantages for rural homebuyers. These benefits include:

• $0 down. Being able to secure financing without a down payment is among the major pluses to first-time homebuyers wishing to use a USDA loan. The USDA loan is one of the last remaining mortgages in America that does not require a down payment.
• Lenient qualification standards. Due to the USDA guaranteeing a portion of each loan against default, lenders can provide lenient eligibility requirements as well as competitive rates and terms. “While credit standards vary by lender, USDA loans generally accommodate buyers with moderate credit scores,” says Chad Vanderslice, mortgage loan officer with U.S. Bank in Southampton, New York.
• Low mortgage insurance. The upfront guarantee fee, which can be rolled into the loan, is only 1% of the loan amount while the annual guarantee fee is only 0.35%. In comparison, on a 30-year FHA loan with a 3.5% down payment, the fees would be 1.75% and 0.85%, respectively, much higher than the USDA loan.
• Competitive interest rates. USDA loans commonly offer lower interest rates compared to conventional loans, reducing monthly payments.

Who is Eligible for a USDA Loan?

As with any mortgage loan, a USDA loan has qualification requirements that first-time homebuyers need to be aware of. Let’s take a closer look at eligibility rules:

• Income limits: In 2025, USDA loan earning ceilings are tied to a percentage of the local median income, usually around 115%, and adjusted based on how many people live in a household. The current typical limit is $112,450 for families of up to four and $148,450 for those with five to eight members — though these numbers can go higher in places where the cost of living is steeper.
• Location requirements: To qualify, the property needs to be located in a rural area approved by the USDA. These areas are usually away from large cities, often with populations under 35,000, and can sometimes include nearby small towns or suburbs just outside bigger city limits.
• Credit score requirements: Typically, you need a minimum 640 credit score, which is the cutoff for automated underwriting; However, lower credit scores may still qualify.
• Occupancy rules: Homes bought with a USDA loan must be used as the homebuyers’ primary residence. You cannot use this financing to purchase a second home, vacation residence, or rental/investment property.
• Property condition stipulations: The home must be safe, livable, and in good condition to qualify. This means it should have reliable heating, cooling, and electrical systems, along with working doors and windows. Essential features like a solid roof, clean water supply, proper plumbing, and a waste removal system must be in place. Additionally, the property should not have serious problems such as structural damage or pest issues. “I had a client recently whose first choice didn’t qualify because of a failing septic system, but we found another great house that passed the USDA appraisal,” says Andrew Lokenauth, a personal finance expert.

Learn more about USDA loan eligibility.

USDA vs. FHA Loans: Which Is Better for First-Time Homebuyers?

“USDA loans are more advantageous for buyers in eligible rural areas who seek zero down payment options and lower mortgage insurance costs,” Vanderslice continues. “FHA loans, meanwhile, are more suitable for purchasers in urban areas or those with lower credit scores.”

Ask Jordan Heatherly, a Nashville-based home loan specialist with Churchill Mortgage, and he’ll tell you that the USDA mortgage often bests an FHA loan.

“I believe it’s a better product than an FHA loan for a first-time home buyer. While there are similarities, consider that the fees charged on a USDA loan are less. Both have upfront fees added to the loan – 1.75% for FHA versus 1% for USDA – and monthly mortgage insurance fees regardless of the down payment amount,” Heatherly says. “When comparing interest rates, FHA and USDA loans are comparable, but it’s smart to check with a loan officer to confirm before making a decision.”

FHA loans have one clear advantage over USDA mortgages, Heatherly adds: the former are less strict when it comes to debt-to-income (DTI) ratios needed, allowing borrowers who have a higher DTI ratio to still qualify. Your DTI needs to be no more than 41% or a USDA loan versus 43% (and sometimes higher) for FHA financing.

How Much Home Can I Afford?

After deciding if now is the right time to buy, many prospective purchasers then ask themselves, "How much can I truly afford?"

This question takes on many factors, including your income and any earnings from other family members, outstanding debts, and your potential down payment – which isn't required with a USDA loan – in addition to costs like homeowners insurance, property taxes, and HOA fees if applicable.

To help determine what you can afford, see this convenient USDA Mortgage payment calculator.

Can I Use Down Payment Assistance with a USDA Loan?

Although USDA loans don’t require a down payment, you can apply down payment assistance (DPA) to cover your closing costs or other loan-related expenses. DPA programs typically offer grants or low-interest second mortgages that help cover upfront buying costs.

“DPA programs vary in their requirements and the amount of financial help given, but they are programs designed to aid primarily first-time buyers purchase a home with less money out of pocket,” notes Heatherly.

Common DPA sources include:

• State Housing Finance Agencies (HFAs) in each state that offer programs designed to help
• The U.S. Department of Housing and Urban Development (HUD), where buyers can search for local homebuying programs by state.
• Local housing authorities in many cities and counties that offer their own resources to help with down payments and closing costs.
• Government-sponsored enterprises Fannie Mae and Freddie Mac, which offer options like Community Seconds and Affordable Seconds, which allow lenders to accept second mortgages from approved assistance programs and nonprofits to help cover down payments.
• Private services like Down Payment Resource, which connect buyers with various homeownership assistance programs.

“I recently helped a client combine a USDA loan with our state’s DPA program. They got $7,500 toward closing costs, which made the entire purchase possible. Some programs even offer up to $10,000 or more in assistance,” says Lokenauth.

Be aware that not all DPAs pair well with a USDA loan. Look closely at the requirements and confirm with your USDA lender that your chosen DPA is compatible.

In addition to or separate from DPA help, USDA loans allow buyers to use both gift funds and seller credits to help cover closing costs and, if needed, a down payment. Gift funds can come from family members, employers, or other approved sources, while seller credits are contributions made by the seller to assist with the buyer’s expenses.

Is a USDA Loan Right for Your First Home?

• The best first-time buyer prospects for a USDA loan include:
• Those who lack substantial savings for a down payment
• Low-to moderate-income applicants who meet the income limits set by the USDA
• Buyers looking to purchase in USDA-eligible locations
• Shoppers with a favorable credit history and a credit score of 640 or higher, ideally
• Those planning to live in the home as their primary residence.

“I work with a lot of young families, teachers, and medical staff in particular who are relocating outside city centers – they are ideal candidates,” says Adele Krsek, mortgage broker/owner of Ease Lending in Bend, Oregon.

To better determine if a USDA mortgage is the right fit for you, contact a USDA-approved lender and ask questions. It’s also smart to get prequalified or preapproved before making an offer on a home. Prequalification provides an estimate of how much you may be able to borrow based on the financial details you share, while preapproval goes deeper – requiring the lender to verify your income, credit, and assets before offering a conditional commitment for a loan amount.

Tips for First-Time Buyers Using a USDA Loan

To improve your odds of getting the green light on a USDA home loan, follow these recommended best practices:

• Get prequalified early to better understand what you can afford.
• Select a real estate agent you can trust who is familiar with USDA guidelines.
• Begin gathering necessary financial documents early, including W-2s, tax returns, and bank statements, and document every significant transaction. “Recently, I had a client whose USDA loan was delayed because we couldn’t verify a $500 deposit she made. The lesson learned? Keep all your documents ready,” suggests Lokenauth.
• Don’t overlook closing costs – even if you don’t plan to make a down payment.
• Look closely at rural area definitions: They may include suburbs or small towns. “Rural doesn’t necessarily mean the middle of nowhere. Around 97% of land in the United States lightly qualifies for a USDA home loan,” Lokenauth points out. Take the time to check the eligibility map on the USDA website to confirm if your chosen location qualifies.
• Choose a lender experienced with USDA loans.
• Avoid opening any new credit accounts before or during your application.
• Don’t assume you won’t qualify just because you make a good income. “Income limits on USDA loans are surprisingly generous and based on household size,” Krsek says.

Other Helpful Resources for First-Time Homebuyers

USDA Home Loan Calculator

This USDA Loan calculator gives you a snapshot of what your monthly payments could be as a first-time homeowner using the USDA loan.

USDA Loan FAQs

Here you will find a list of common questions on the USDA loan.

See if You Qualify for a USDA Loan

Speak to a USDA loan specialist and find out if you qualify for a USDA loan.