USDA Rural Development loan: eligibility + fees

Updated April 2026.

USDA loans are the rural and exurban version of the zero-down-payment mortgage. The U.S. Department of Agriculture guarantees the loan; banks and credit unions fund it. Two things decide whether you qualify: the property has to sit inside USDA's eligibility map (broader than “rural” usually implies — plenty of small towns and outer suburbs are on it), and your household income has to be at or below 115% of the county's area median.

The cost trade for that zero-down access is a small upfront guarantee fee plus a smaller ongoing annual fee that runs the life of the loan — closer to FHA's MIP than conventional PMI in structure. The right financial endgame for many USDA borrowers, once you build equity, looks like the FHA endgame: refinance into a conventional loan to drop the annual fee, if rates support it. Run your specific scenario, including the upfront and ongoing fees, on the USDA loan payoff calculator.

Both the property and the borrower have to qualify

The USDA program has both a property test and a borrower test. Both must pass for the loan to qualify.

Geographic eligibility. The property must be in an area designated as rural by the USDA. Check the map at eligibility.sc.egov.usda.gov. The map shades eligible vs ineligible — many surprises in both directions. Towns under 35,000 population usually qualify; outer suburbs of major metros often do too.
Income eligibility.Household income must be ≤115% of the area median income (AMI). The USDA publishes current limits by county. The USDA counts everyone's income in your household — not just the borrowers on the loan. A spouse who isn't on the mortgage still counts. If household income is over the limit, you don't qualify, full stop.

The two fees on a USDA loan

Upfront guarantee fee: 1.0% of loan amount, financed into the loan at closing. On a $240k loan: $2,400 added to principal.
Annual fee: 0.35% of the loan balance per year, paid as part of the monthly mortgage payment. On a $240k loan: ~$840/year = ~$70/month. Runs for the life of the loan.

How to apply

Verify eligibility. Property + income, both via the USDA online tools.
Find a USDA-approved lender. Not every lender participates. The USDA maintains a list — most regional banks and credit unions in eligible areas do.
Pre-approval.Standard mortgage pre-approval — credit pulled, income verified. USDA doesn't set a hard credit minimum but lenders typically want 640+.
Find a property in the eligible area.Many buyers underestimate how broad the eligible map is — homes you wouldn't think of as rural often qualify.
USDA underwriting. After lender approval, the USDA itself reviews and issues a Conditional Commitment. Adds ~5-10 days vs conventional. Final approval, then closing.

When USDA actually beats the alternatives

vs. FHA: USDA wins if you have zero down payment and the area qualifies. The annual fee (0.35%) is much lower than FHA annual MIP (0.55-0.85%).
vs. Conventional with PMI:USDA wins if you don't have 5%+ down. With 20%+ down, conventional always wins (no fees, lower rate).
vs. VA:If you're VA-eligible, VA almost always wins — no annual fee, no funding fee for disabled vets.

USDA is a specific tool, not a general-purpose mortgage. If you're zero-down, the property is on the eligibility map, and you're under the income cap, it's one of the cleaner deals in mortgage. Outside that triangle it's not the right fit — and that's most buyers. Which is fine; it's designed to be narrow.

FAQ

Is my area eligible for a USDA loan?

Check the USDA's eligibility map at eligibility.sc.egov.usda.gov. Many small towns and outer suburbs of major metros qualify, even ones that don't feel rural. The map updates periodically; what's eligible today might not be in 5 years, but your existing loan stays in force.

What are the USDA income limits?

Household income must be at or below 115% of the area median income (AMI) for your county and household size. Limits vary substantially by county and household-size bracket, so the exact figure has to come from the USDA's eligibility lookup at eligibility.sc.egov.usda.gov rather than a single national number. The limit is checked at origination only; if your income grows after closing, the loan stays in force.

Does the USDA annual fee ever go away?

No. The annual fee (0.35% of the balance) runs for the life of the loan with no LTV-based cancellation, similar to FHA MIP. The only way to eliminate it is to refinance into a conventional loan once you have 20% equity.

Can I use a USDA loan for a second home or rental?

No. USDA Rural Development loans are for primary residences only. The home must be the borrower's primary residence and be modest in size and cost relative to the area.

Sources and references

USDA Rural Development — Section 502 Guaranteed Loan Program — canonical USDA loan program reference.
USDA Property Eligibility Map — check whether a specific address qualifies.
CFPB — USDA loan basics — consumer-perspective overview.

USDA loan payoff calculator — factor in the guarantee fee + annual fee on your numbers.
Refinance vs. prepay — if rates drop, refinance into a conventional and shed the annual fee.
Lump sum vs. extra monthly — how to deploy a windfall against a USDA-financed home.

Written by James L. Wu. The USDA eligibility map updates a few times a year and area income limits get republished each fiscal year, so treat the framing here as the shape of the program — not the live numbers for your specific county. See the editorial policy for sourcing.