How a USDA loan works
USDA doesn't hand you the money for its main home loan. You get it through a regular lender that's approved for USDA loans, and USDA backs it, which takes on part of the lender's risk. That's why the terms can be so friendly to first time buyers.
- No down payment. USDA calls it 100% financing.
- 30 year fixed rate. No adjustable rates, no balloon payments, no prepayment penalty.
- Closing costs. Reasonable closing costs can be paid from the loan, and a seller can contribute up to 6% of the price.
- USDA fees. An upfront fee of 1% of the loan, which can be rolled into the loan, and an annual fee of 0.35%. USDA can change both.
- Not just first time buyers. But it has to be the home you live in, and you move in within 60 days of closing.
- Lots of home types. Existing homes, new construction, townhomes and condos with some limits, modular homes, and manufactured homes within USDA's age rules.
Rates come from the lender, not USDA, and they change. You're free to use any lender you want, and I can share several local names that do USDA loans.
Sources: USDA Rural Development, single family housing loan program page (updated June 22, 2026); USDA program overview, January 2026 (fees, 60 day move in, home types, 6% seller contribution). Checked October 26, 2026.
The two things that decide it
1. The address
USDA decides which areas count as rural, and it does it on a map, address by address. Bigger city centers usually aren't on it. A lot of the county land around them can be. Two homes a mile apart can land on different sides of the line, so I check every address on USDA's map before we go see it, and your lender confirms.
You can check one yourself on USDA's eligibility site. Pick the single family housing loan, then type in the address.
2. Your household income
USDA caps household income at 115% of the area's median income. The limit is set by county and household size, and it counts the income of everyone who'll live in the home, not just the people on the loan. Your lender runs that number. USDA's own program page says there's no USDA credit score requirement, but lenders usually set their own minimum.
These are USDA's published program rules, not a promise of approval. A USDA approved lender looks at the whole picture and confirms what applies to you and the address.
Sources: USDA Rural Development, single family housing loan program page; USDA program overview, January 2026. Checked October 26, 2026.
USDA also lends directly
There's a second USDA program for lower income households. With that one, you apply through your local USDA Rural Development office instead of a lender. It can run up to 33 years, or up to 38 for very low incomes, and it has its own income limits and rules. If your income is on the lower side, it's worth a call to ask.
Source: USDA Rural Development, single family housing direct home loans. Checked October 26, 2026.
How I'd use this
Talk to a USDA approved lender before you start touring, and ask straight out whether a USDA loan fits you. Then send me the homes you like and I'll check each address on the map before we go see it, so you don't fall for one that's on the wrong side of the line.
USDA pairs with Alabama's AHFA programs too. Step Up and First Step both work with USDA loans, and they can help with what's left at closing. My down payment help guide has those limits, and my first time buyer guide covers the whole process step by step. If you're building, read my building a home guide first.
Common questions
Is a USDA loan only for first time buyers?
No. USDA's January 2026 program overview says the lender based USDA loan is not limited to first time buyers. The home does have to be the one you live in.
Do I need a down payment for a USDA loan?
USDA describes it as 100% financing, so no down payment is required. You still have closing costs, though USDA allows reasonable closing costs to be paid from the loan, and a seller can contribute up to 6% of the price.
How do I know if a home is in a USDA area?
USDA decides it address by address on its eligibility map. Two homes a mile apart can land on different sides of the line, so I check every address before we go see it, and your lender confirms.
Is there a minimum credit score?
USDA's own program page says it has no credit score requirement, but you have to show you can manage debt. Lenders usually set their own minimums, so ask the lender you pick.
Can I use a USDA loan on new construction?
Yes. USDA allows new construction, including a single close construction to permanent loan. My building a home guide covers how that works with a builder.
Can I use AHFA down payment help with a USDA loan?
Yes. AHFA's Step Up and First Step programs both work with USDA loans. My down payment help guide has the details.
General information about USDA's published loan programs, not financial or legal advice. Program terms, fees and limits change, and USDA updates income limits each year. A USDA approved lender confirms what's current. Updated October 26, 2026.