Sara Routhier, Managing Editor of Features and Outreach, has professional experience as an educator, SEO specialist, and content marketer. She has over five years of experience in the insurance industry. As a researcher, data nerd, writer, and editor she strives to curate educational, enlightening articles that provide you with the must-know facts and best-kept secrets within the overwhelming worl...

Full Bio →

Written by

Joel Ohman is the CEO of a private equity-backed digital media company. He is a CERTIFIED FINANCIAL PLANNER™, author, angel investor, and serial entrepreneur who loves creating new things, whether books or businesses. He has also previously served as the founder and resident CFP® of a national insurance agency, Real Time Health Quotes. He also has an MBA from the University of South Florida. ...

Full Bio →

Reviewed by Joel Ohman
Founder, CFP®

UPDATED: Oct 30, 2012

Advertiser Disclosure

Advertiser Disclosure: We strive to help you make confident loan decisions. Comparison shopping should be easy. We are not affiliated with any one loan provider and cannot guarantee quotes from any single provider. Our partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.

Editorial Guidelines: We are a free online resource for anyone interested in learning more about loans. Our goal is to be an objective, third-party resource for everything loan related. We update our site regularly, and all content is reviewed by experts.

A USDA home loan is a mortgage insured by the United States Department of Agriculture. Since the mortgage is insured by the government, lenders—such as banks and credit unions—are more inclined to offer better interest rates and options to borrowers. The federal government and USDA do not lend the mortgages but rather simply insure them for lenders.

Since USDA mortgages make up a small percentage of government-insured financing, they do not typically appear in home loan news. Regardless, they are highly beneficial to prospective homeowners that achieve approval.

USDA home loans are for moderate to low-income borrowers. Some of the benefits of USDA mortgages include:

  • Zero money down requirements
  • No mortgage insurance requirements
  • Flexible credit criteria
  • Seller paid closing costs

The USDA does not put restrictions on previous homeownership, so both new and previous buyers can apply to see if they will obtain a USDA mortgage. However, the federal government does require that a borrower’s desired is in a rural area. The USDA typically stipulates this to mean homes in areas which have a population of less than 20,000.

The debt-to-income ratio of applicants is a very important deciding factor in the approval process. No matter how generous USDA mortgage benefits are, lenders will not grant approval for an applicant that has either too much debt or too little income. Additionally, lenders will evaluate whether an applicant has a credit score that is sufficient for borrowing a USDA mortgage.

All mortgages insured by the USDA carry fixed interest rates. This means that borrowers will have to make steady and stable monthly payments since the interest rate on their home loan will not increase or decrease. Borrowers will be in a better position to plan and budget their finances with fixed interest rates.

Borrowers are able to view their eligibility for a USDA mortgage at the USDA website. Unfortunately, simply meeting USDA standards does not mean that a borrower is going to be approved for a mortgage. Individual lenders have different criteria for deciding who is and is not eligible for a USDA mortgage. Comparing lenders and speaking to representatives is an excellent way to check the specific requirements at various financial institutions.