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, USDA loan, which offers many benefits for first-time homebuyers.

Let’s explore the key perks, take a closer look at requirements, and explore helpful tips on how to become a USDA first-time homebuyer.

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

The USDA loan has significant advantages for rural homebuyers, including:

• Zero down: Securing financing without a down payment is a major benefit to plugging into a USDA loan. You won’t have to worry about saving for months or even years to come up with a down payment.
• Less stringent credit requirements: The USDA guarantees a portion of each loan against default, so lenders can provide lenient credit requirements. Lenders generally look for at least a 640 credit score, though credit requirements vary by lender.
• Low-cost 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 (which are not backed by a government entity), meaning you may have lower monthly payments compared to other loan types.

Who is Eligible for a USDA Loan?

You must meet certain guidelines to be eligible for a USDA loan, including:

• 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 one to four family members and $148,450 for those with five to eight members. These numbers can rise where the cost of living is steeper.
• Location requirements: The property must 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.
• Credit score requirements: Typically, you need a minimum 640 credit score. 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 a USDA loan 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, like 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. FHA loans, meanwhile, are more suitable for purchasers in urban areas or those with lower credit scores,” says Chad Vanderslice, mortgage loan officer with U.S. Bank in Southampton, New York.

Jordan Heatherly, a Nashville-based home loan specialist with Churchill Mortgage, says the USDA mortgage beats the FHA loan. He says, “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. But it’s smart to check with a loan officer to confirm before making a decision.”

FHA loans allow for more relaxed debt-to-income (DTI) ratios, which refers to the amount of debt you carry compared to your income. Your DTI should be no more than 41% for a USDA loan versus 43% (sometimes higher) for an FHA loan.

How Much Home Can I Afford?

So, how much home can you afford?

It can depend on your income and any earnings from other family members, outstanding debts, and your potential down payment (not 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 our convenient USDA Loan 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
• 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 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.

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. Gift funds can come from family members, employers, or other approved sources, while seller credits come from the seller to assist with the buyer’s expenses.

Is a USDA Loan Right for Your First Home?

Can you say “yes” to all of the following? :

• You lack substantial savings for a down payment.
• You’re a low-to moderate-income applicant who meets the income limits set by the USDA.
• You’re looking to purchase in a USDA-eligible location
• You have a credit score of 640 or higher
• You plan to live in a home as your primary residence.

If you answered “yes” to all of the above, you might want to look into a USDA loan to finance your first home.

“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.

Contact a USDA-approved lender to learn more about whether you’re a good fit for a USDA loan. 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.

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 trustworthy real estate agent familiar with USDA guidelines.
• Begin gathering necessary financial documents early, including W-2s, tax returns, and bank statements, and document your transactions. “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, because you’ll pay between 2% and 5% of the loan amount in closing costs. Not making a down payment doesn’t exempt you from these costs.
• Look closely at rural areas, including 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.”
• Choose a lender experienced with USDA loans.
• Avoid opening any new credit accounts before or during your application to harm your DTI.
• Don’t assume you won’t qualify just because you have a healthy 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

View a snapshot of what your monthly payments could be as a first-time homeowner with the USDA loan.

USDA Loan FAQs

See if You Qualify for a USDA Loan

Speak to a USDA loan specialist to learn more about qualifying for a USDA loan.