USDA loan program

The USDA zero down rural housing loan is a fantastic low cost loan option that is a great alternative to most high hassle, DPA loan programs--as long as the buyer(s) income meets guidelines.

*****This loan also has a great option to finance some or all of a buyer's closing costs if the appraised value comes in higher than the sales price.

USDA zero down home loan

The USDA Guaranteed loan program has income limits based on household size and location of the property. Currently as of 6/18/25 the low cost California county/metro area maximum annual income for all household members with 1-4 persons is $121.900. The max annual income with 5-8 persons is $160,950. In high cost counties for example --using the Santa Cruz -Watsonville metro area-- the limits rise to $265,100 for 1-4 persons and $349,900 for 5-8 persons.

Income limits can be checked here.

Location of the property is a key element with USDA. The program is designed to promote home ownership in rural areas --however with the expansion of numerous homes into traditional rural areas over the last few decades, it is surprising which "built up" areas are still eligible. Some estimate roughly 97% of the nation's locations are eligible for a USDA loan. The map below shows which areas are eligible--tan areas are not. As you can see, higher population metro areas are typically ineligible, while rural less populated areas are.

Exact address can be checked by clicking here

The USDA program has some unique limitations to go along with it's advantages. With liberal underwriting guidelines very similar to FHA, there are also some things to be aware of. Please keep in mind some lenders may have extra rules called overlays that may be stricter than what USDA will allow.

• USDA has a 1% financed guarantee fee and a .35% annual fee collected with each monthly payment. That's less than an FHA loan, and makes the USDA loan a better choice over FHA in many cases.

• If the lender's USDA appraised value comes in higher than the sales price, certain buyer's closing costs can be financed into the new loan.

• A USDA financing home buyer typically can't own another home at the time of new home purchase closing. There are some scenarios where owning other property may be possible, although very rare. Consult a qualified loan officer to discuss.

• If a home buyer has enough liquid funds for a 20% or more down payment they are typically ineligible for a USDA loan

• A home buyer's debt ratio is much tighter on USDA than other loan programs with a 35% housing ratio and 45% overall debt ratio typically being the maximum

• Some income types do not count towards the max limit such as --a minor in the household wages, foster income, adoption assistance, Snap benefits and a few other types. For a full-time dependent student over 18 living in the home only a small portion is counted.

• USDA typically will require a well water quality test

• Even though a rural housing program under the US Department of Agriculture, any income producing activities or commercial use structures on the property will typically not be allowed.

• Manufactured homes have restrictions. See the USDA manufactured home loans post for more details.

It's very important to keep in mind that some lenders will have overlays, which are tighter rules than what USDA has set as the minimum standard for any loan sold to or insured by them. Banks and credit unions for example are notorious for overlays that can make it tougher for a borrower to qualify while mortgage brokers typically do business with wholesale lenders that have little to no overlays.