USDA

Definition

In real estate, "USDA" refers to home loans backed by the United States Department of Agriculture that make homeownership more accessible in eligible rural and some suburban areas. Often called USDA loans, these government-backed mortgages target low- and moderate-income buyers and commonly allow 100% financing—meaning no down payment is required.

Two main USDA loan types

Section 502 Guaranteed Loan

Private lenders (banks, credit unions) originate these loans and the USDA guarantees a portion, reducing lender risk. That guarantee enables 100% financing for qualified buyers. Typical features:

• Available through participating private lenders.
• Fixed interest rates and 30-year terms.
• Income limits generally up to about 115% of the area median income (varies by county and household size).
• Can be used to buy, build, repair, or improve modest homes in eligible areas.

Section 502 Direct Loan

The USDA issues these loans directly to very low- and low-income applicants. They include payment assistance to reduce monthly payments and are intended for applicants who can’t access conventional financing. Typical features:

• Targeted at households usually below 80% of area median income.
• Very low interest rates; loan terms can extend up to 38 years.
• Subsidies available to lower monthly payments.
• Homes must meet USDA safety and sanitary standards and sit in eligible rural locations.

Key features & eligibility

• No down payment: USDA loans commonly offer 100% financing, eliminating the need for a cash down payment.
• Property location: The property must be in a USDA-eligible rural or some suburban areas (USDA maintains eligibility maps).
• Income limits: Borrower household income must fall below program limits that vary by county and household size (guaranteed loans typically allow higher limits than direct loans).
• Primary residence requirement: The property must be owner-occupied; USDA financing is not available for investment or vacation homes.
• Credit considerations: The USDA does not set a strict minimum credit score, but most lenders look for roughly a 640 score or higher for guaranteed loans.

Common real-world uses

• Purchasing a modest single-family home in an eligible rural town using a Section 502 Guaranteed Loan with no down payment.
• Applying for USDA home repair loans or grants to fix critical safety issues or to help seniors (62+) with repairs.
• Building a new home on rural land using a Section 502 Direct Loan when conventional financing isn’t available.
• Buying an eligible home, living in it to meet occupancy rules, making improvements, and later selling—often used by buyers who plan a long-term residence.

Limitations & restrictions

• Not for investment properties or second homes—USDA loans require owner-occupancy.
• Property eligibility is geographic: some rural areas aren’t covered by the program.
• Homes must be modest, safe, and sanitary to meet program standards.
• Income and household size rules can restrict qualification; direct loans focus on very low- and low-income applicants.

Quick summary

USDA in real estate refers to federal loan programs that expand affordable homeownership in eligible rural and suburban communities. With features like no down payment, income-based eligibility, and two distinct loan tracks (Section 502 Guaranteed and Section 502 Direct), USDA loans help qualified low- and moderate-income buyers purchase, build, or repair modest homes—provided the property is owner-occupied and located in an eligible area.