Best USDA Mortgage Lenders of December 2023

If you're buying a home in an eligible suburban or rural area, you may want to consider getting a mortgage loan issued or secured by the U.S. Department of Agriculture (USDA). USDA loans offer easy qualifying requirements and low interest rates. However, you do have to fulfill certain requirements, such as providing reliable proof of income and keeping your loan balance below allowable limits. Learn more about USDA loan eligibility and check out our picks for the best USDA loan lenders.

USDA loans are home loans the Department of Agriculture facilitates. There are three primary types of USDA mortgage loans.

Single family housing guaranteed

These loans are intended for rural residents with low incomes (below 115% of the area median income). Borrowers are not required to make a down payment to get a USDA loan. However, the home must act as the buyer's primary residence.

These loans are unique because they're made through private lenders (not the USDA itself), then they're guaranteed by the USDA. The best USDA lenders are transparent about the process and any costs associated with your home loan.

To qualify for a single family housing guaranteed USDA home loan, buyers must have reasonable credit. Rates vary from one lender to another, and loans are available only from lenders approved to issue loans through the USDA program. If funds are limited, first-time home buyers are given priority.

Single family housing direct

These loans are meant to help low- and very low-income borrowers get an affordable home in a rural area. Borrowers do not need to make a down payment, but because these loans are issued directly by the USDA (not a private lender), the criteria to qualify is a bit more strict. Requirements include:

• Not having safe or sanitary housing
• Unable to get a loan from other sources
• Not suspended from participation in federal programs

There are a few requirements for homes purchased with a single housing direct USDA loan, including:

• 2,000 square feet or less
• No pool
• Must be a primary residence
• Must not exceed a certain market value (varies by area)

The standard USDA home loan repayment timeline is up to 33 years (unless this would make payments too high). Direct loans can be repaid over as long as 38 years for very low-income borrowers. The interest rate is based on current market rates, but could be as low as 1% when modified by repayment assistance. As of July 1, 2023, the current rate for low- and very low-income borrowers is 4.125%.

These loans are issued directly by the USDA (not a private lender) through the Section 502 Direct Loan Program.

Single family housing repair

These loans empower individuals and families with very low incomes to repair or improve their homes. Seniors with low incomes can also get grants to eliminate health and safety risks within their homes. Requirements to qualify for a USDA single family housing repair loan include:

• Can't get credit elsewhere
• Family income below 50% of the area median income
• Funds must be used to repair or improve a home
• The home must be currently occupied by the borrower

Borrowers can get a USDA home loan for repairs up to $40,000 to be repaid over as long as 20 years. The interest rate on the loan is fixed at 1%. Applications are accepted at local rural development offices only.

These loans are made available through the Section 504 Home Repair Program.

Qualifying criteria can vary by lender. If you are applying for a loan guaranteed by the USDA, you'll need to check with your private lender. Some of the best USDA lenders will accept low-credit borrowers -- so don't worry if your credit score isn't ideal. If you're applying for a loan from the USDA (a direct or repair loan), talk to your local office about requirements.

Generally, USDA borrowers must:

• Be considered low-income. This varies by area. You can use this map to select your state and see income limits for direct loans in your area. If you're applying for a loan guaranteed by the USDA but issued by a private lender, for example, your income cannot exceed 115% of the area median income where you live.
• Be a U.S. citizen or eligible non-citizen. This is required by all USDA mortgage lenders.
• Use the home as your primary residence. This is also required for all USDA loans.
• Have a reasonable credit score. This is required for USDA-guaranteed loans that are issued by private lenders. Both direct loans and home improvement loans are available to people who cannot qualify for traditional financing, which may include people with limited or poor credit histories.
• Meet debt-to-income requirements. This is also a requirement for loans guaranteed by the USDA but issued by private lenders. Generally, your principal, interest, property taxes, and insurance (PITI) on your mortgage cannot exceed 29% of gross monthly income, and your PITI plus all other debt you owe cannot exceed 41% of gross monthly income.

USDA mortgages don't require a down payment, but if a close friend or relative wants to give you a down payment gift, you're welcome to use it for part or all of your down payment. (Some mortgage types don't allow this.)

Not every lender offers USDA-backed mortgages. To get started, look through the list above to find the best mortgage lenders for USDA loans.

If you're interested in a USDA direct loan or a home improvement loan, the USDA will be your lender. You'll need to visit your local rural development office to get started with an application.

If you want to obtain a loan that's guaranteed by the USDA, you'll have to choose a private lender first. To make sure you find the best mortgage lender for your USDA loan, get quotes from at least three different lenders. Rates and terms can vary. Getting multiple quotes allows you to compare USDA mortgage lenders.

When you're comparing mortgage rates, here are a few important questions to ask:

• Do I meet the qualifying requirements? While USDA mortgage lenders must follow the government's minimum guidelines for income, credit, and debt-to-income, some lenders are stricter than the USDA requires. If you have a credit score below 640 or no credit history, though, don't worry. The best USDA lenders allow for manual underwriting -- which could improve your chances of qualifying for a mortgage.
• Is this the best interest rate available? Rates can vary from one lender to another. Even a small difference in the rate you're charged can be worth thousands in savings since mortgage loans are large and are repaid over many years.
• What loan fees will this lender charge? Find out what costs are associated with the loan beyond interest. For example, private mortgage insurance (PMI) is not required, because USDA's guarantee serves a similar purpose -- but buyers still pay an extra fee to cover the USDA's guarantee. This fee varies from lender to lender.
• What closing costs will I pay? Closing costs can vary between lenders. Often, these total between 3% and 5% of the borrowed amount for USDA loans. They may include appraisal fees, title insurance, notary and document fees, and lender-specific fees such as origination fees and underwriting fees.

USDA loans are a good option if you're purchasing a home in an eligible rural or suburban area and you meet the USDA's income limits. They're a great fit if you want a home with no down payment requirement, and especially helpful if you need less stringent qualifying requirements than a conventional loan.

USDA loans may be your only option for loans that require no down payment at all, unless you can qualify for a VA loan. And while the best USDA lenders are open to borrowers with low credit, most lenders offering USDA loans require a credit score of 640 or higher. If your credit is very low, an FHA loan may be a better option. These are available with credit scores as low as 500 with a down payment of 10%, or 580 with a 3.5% down payment.

If you have good credit and a down payment of at least 20% of your home's value, a conventional loan will often be more affordable than a USDA loan. With a conventional loan, you won't have to pay a guarantee fee or mortgage insurance. If you make above the income limits for a USDA loan, you'll also have to consider other options since you won't qualify.