What Is a USDA Loan? Overview and Example

What Is a USDA Loan?

By Kristi Waterworth – Updated Jan 9, 2026 at 11:44 AM EST | Fact-checked by Frank Bass

Key Points

USDA mortgages offer 100% financing with no down payment and no mortgage insurance required.
Property must meet strict USDA criteria and be located in designated rural areas.
These loans are ideal for low- to moderate-income buyers in rural settings.

For potential home buyers in rural parts of the United States, a loan option exists beyond FHA, VA, or conventional: the USDA mortgage. These loans are meant to help finance rural properties – even single-family homes – and encourage more people to move into these areas.

Loading paragraph...

A rural farm blanketed in snow. — Image source: Getty Images.

Loading image...

Loading paragraph...

Loading pitch...

Loading paragraph...

Related investing topics

Loading paragraph...

Real Estate, Mortgage, and Home Improvement Fraud Statistics

Real estate and investing fraud have changed over time, with some types becoming more prevalent and others falling off.

How to Calculate Closing Costs When Paying Cash for a Home

Some fees are unavoidable whether you're paying cash or financing a home purchase. Here's what you need to know beforehand.

Real Estate Due Diligence Checklist

This real estate due diligence checklist will help investors complete a thorough evaluation of a property.

The House-Flipping Statistics Investors Should Know in 2025

Thinking about house flipping? This is what you need to know about profit, return on investment, and the best markets.

Loading hub_pages...

Loading paragraph...

Loading pitch...

About the Author

Kristi Waterworth has been a contributing real estate and financial expert at The Motley Fool, covering real estate, investing, and personal finance topics, since 2020. Kristi has been interviewed by various TV media outlets and podcasts for her real estate investing expertise – from residential real estate to digital real estate and everything in between. Kristi’s journalist career spans over 25 years, and she has written about real estate investing, homeownership, and home construction specifically for the last decade. She was also previously a licensed Realtor and general building contractor before the Great Recession and housing market collapse. She holds a bachelor’s degree in American history from Columbia College in Missouri.

TMFMaldivesBlue

@MaldivesBlues

The Motley Fool has a disclosure policy.

No credit score requirement. The official word is that there is no minimum credit score for a USDA loan, provided you demonstrate a willingness and ability to handle and manage debt. In practice, lenders can apply overlays that may require minimum credit scores for their own banks, but these are still fairly low, often in the low 600s.

Competitive interest rates. There are several loan programs that fall under USDA, all of which offer competitive rates. Programs targeted to low- or very low-income borrowers may also come with a subsidized interest rate. Be sure to ask your lender if you qualify.

No mortgage insurance. USDA loans are guaranteed by the government, so they don't require mortgage insurance. Essentially, the government is your mortgage insurance.

Drawbacks of a USDA mortgage

USDA mortgages aren't for everyone, or for every circumstance. Here are a few negatives to consider:

The house must qualify. If you've ever had an FHA mortgage or knew of someone who did, you probably learned about the FHA inspection, which is fairly harsh for some types of homes. That's nothing compared to what the USDA puts a home through. Your best bet when buying with a USDA mortgage is to find a home constructed to USDA standards, rather than trying to make other homes fit that standard. This kind of limits your housing pool, but if it's your first house and not your last house, that's not all bad.

Homes must be in targeted areas. You can't just use a USDA mortgage anywhere you'd like; it has to be for a home in a particular area, generally far from the amenities of a city. The rural communities where these homes exist may suffer from significant poverty or have few local jobs available, so you'll have to either commute or bring a job with you.

What Is a USDA Loan?

Key Points

Related investing topics

Real Estate, Mortgage, and Home Improvement Fraud Statistics

How to Calculate Closing Costs When Paying Cash for a Home

Real Estate Due Diligence Checklist

The House-Flipping Statistics Investors Should Know in 2025

About the Author

Read Next

Premium Investing Services

Real Estate, Mortgage, and Home Improvement Fraud Statistics

How to Calculate Closing Costs When Paying Cash for a Home

Real Estate Due Diligence Checklist

The House-Flipping Statistics Investors Should Know in 2025

What is a USDA mortgage?

Benefits of a USDA mortgage

Drawbacks of a USDA mortgage

Related investing topics

Who are USDA mortgages good for?