With the cost of living in urban areas skyrocketing, young people looking to become first-time homeowners outside the city may be able to access a tool that's often overlooked: a government-backed mortgage through the United States Department of Agriculture, which offers an affordable, no-money-down mortgage option.
"I've worked with plenty of first-time buyers who thought they needed years more to save, only to learn that a USDA loan could help them buy a home with basically nothing down," says Ashley Harris, director of Homebuyer Education at Neighbors Bank.
Even though it's called a USDA loan, you don't have to be a farmer to use it.
"Folks think USDA means farmland," says Britt Guimond, a GREEN Realtor® with Aspen Snowmass Sotheby's International Realty. "It doesn't. It covers more territory than buyers expect. They often assume they're priced out near a city but are surprised by how many options actually qualify."
Here's what a USDA loan is, and why you might consider one.
What is a USDA loan?
A USDA home loan is a government-backed mortgage offered through the US Department of Agriculture. It's officially called a Rural Development Guaranteed Loan, but most often simply called a USDA loan, Harris says.
Despite its name, these loans aren't just for people buying in rural areas. Buyers can even purchase certain suburban homes using a USDA loan.
"Ninety-seven percent of the US land mass falls in an eligible area for a USDA loan," Harris says. "That's a lot more of the map than most people assume."
That's good news for millennials and other young buyers who, Harvard research shows, often move from cities to suburban communities where property can be more affordable and there are more family-sized housing options. A July survey from Neighbors Bank found that 88% of first-time home buyers are open to buying outside a major metro area to find something more affordable, and that more than half (54%) of first-time home buyers are willing to expand their search radius for an affordable home.
An affordable mortgage option with no down payment
For many moderate-income or low-income buyers, including first-time homeowners, there's a massive advantage to a USDA loan that Harris calls its "shining star": no down payment required.
For many homeowners, saving for even a modest down payment can take years. Saving has become even more challenging as the prices of homes have skyrocketed in recent years. Separate Harvard research found that the down payment and closing costs needed to purchase a median-priced home rose more than $8,000 between 2020 and 2025.
By eliminating the barrier of a steep down payment, a USDA loan can help people become homeowners sooner, even if they hold debts such as student loans.
Harris tells the story of a first-time buyer who could afford 10% and qualified for multiple loans. When Neighbors Bank laid out her choices side-by-side, they quickly realized that the USDA loan, which didn't require a down payment, was the right choice for her.
"This was her first home," Harris says. "She and her partner were planning to have kids. Daycare costs money — a lot of money. She'd been living with family and still needed to furnish the place. She didn't need a bigger down payment. She needed liquidity. USDA gave her the lowest monthly payment and let her keep her savings intact."
In addition to not needing a down payment, USDA borrowers don't pay private mortgage insurance on their USDA loans. The loans have what's called a guarantee fee, but that's often substantially less than homeowners would pay in PMI.
Because of that, Harris finds that USDA loans are often the loan product that gives people the lowest monthly payment option compared to FHA or conventional loans, particularly for buyers putting down less than 10%.
Who qualifies for a USDA loan?
Who qualifies for a USDA loan comes down to two primary factors: First, the property must be eligible. That's more common than many buyers realize, Harris notes, so it's worth checking a property eligibility map to determine which areas could qualify for this type of loan.
"USDA boundaries aren't straightforward," Guimond says. "A house can qualify one block off the highway and not qualify a quarter mile closer to town." For that reason, she continues, she checks the map for every property.
The calculation of how the USDA determines which areas qualify is somewhat complicated, involving an area's population and overall access to mortgage credit. What's most important for buyers to note is that the vast majority of the US qualifies for the loan. Eligibility is typically updated every five years.
Next, the buyer(s) and their household must qualify. The first criteria is income: Your entire household income must be under 115% of your area's median household income.
For USDA purposes, "a household is technically the income of every adult living in the home," Harris says. "That means a working teenager or a parent living with you counts toward that income amount, even if they aren't on the loan."
There's no official credit score minimum for USDA loans, Harris says. Neighbors Bank offers USDA loans to qualified buyers with a credit score of 620 or higher, but buyers shouldn't let low credit stop them from reaching out to a loan officer, according to Harris.
"If your score is below 620, you may be closer than you think," Harris said. "A loan officer can review your full credit profile, including your payment history, rental history and savings, and help you understand what may be needed to become eligible."
Guimond says that sellers might hear "no down payment" and assume there's a risky buyer on the other end of the deal, but the truth is the opposite. "That's the myth I'm fighting to dispel with each offer," she says. "USDA is a fully underwritten, government-backed loan. The property has to qualify, too — so if anything it's more vetted, not less."
How to get a USDA loan
You can get a USDA loan two ways: the Guaranteed program or the direct loan program.
"Most people who use one go through the Guaranteed program, meaning a private lender like Neighbors Bank funds the loan and USDA guarantees a portion of it," Harris says. To get started on that process, reach out to a lender like Neighbors Bank.
The USDA also operates a direct loan program, "but that's reserved for very low-income borrowers and works differently," Harris says.
It's important that buyers — especially first-time buyers, those with low and moderate incomes, and those with student debt — understand all the mortgage options available to them. A knowledgeable loan officer can help you understand which programs are best for you as a buyer and the home you're purchasing, including exploring the option of a USDA loan.
"If your household income falls within 115% of the area median income for that county, and a 30-year term works for you," Harris says, "the USDA loan may offer one of the more affordable month-to-month paths to homeownership for eligible buyers."
When you're ready to move forward, Guimond recommends having the lender ready to call the listing agent directly. "That one phone call kills more objections than any cover letter," she says. "Ask the lender to walk the agent through the loan process so there are no unknowns. Especially if the agent isn't familiar with USDA loans, they may not know what questions to ask."
And, she adds, don't worry about USDA loans lengthening the home-buying process. "With a lender who actually does USDA regularly," she says, "it's not slower than conventional."
Created by the Commerce team at Business Insider with Neighbors Bank.