A USDA guaranteed loan lets an eligible buyer finance a home in a USDA-designated rural area with no minimum required investment, as long as the household's adjusted income is at or under USDA's moderate income limit for the area. The loan comes from an approved lender, and USDA Rural Development guarantees it. For fiscal year 2027 (Oct 1, 2026 through Sep 30, 2027), USDA's upfront guarantee fee is 1.00% of the loan and the annual fee is 0.35%, on purchases and refinances (USDA Rural Development notice, Sep 16, 2026). Two tests come before anything else: the address and the household income.
Here's how the program works, what trips people up, and how it compares.
USDA doesn't lend the money on this program. An approved lender makes the loan, underwrites it to USDA's rules in 7 CFR part 3555, and asks Rural Development for a loan note guarantee. If the borrower defaults and the lender takes a loss, USDA pays the lender under that guarantee. That's what lets the lender finance the full price for an eligible buyer.
USDA also runs a separate direct loan program, where Rural Development lends to lower income households itself. It has its own application through USDA. This article covers the guaranteed program, which is what most lenders, including me, offer.
USDA will only guarantee loans in areas it designates as rural (7 CFR 3555.201). "Rural" is defined by section 520 of the Housing Act of 1949 (42 U.S.C. 1490) using population thresholds and other criteria, with rules that keep some areas eligible between census updates. USDA publishes an eligibility map, and the lender checks the exact address.
Rural in USDA's sense covers far more than farms. Many small towns and the edges of metro areas qualify. A house inside Fort Worth is often outside the eligible area, while one a short drive away may be inside it. If the designation changes, existing conditional commitments are honored (7 CFR 3555.201(a)).
A real estate agent working with a USDA buyer saves everyone time by checking the address on the map before writing an offer.
The home must be your principal residence, and it must be modest, decent, safe and sanitary (7 CFR 3555.151(c) and (d)). USDA won't guarantee loans for investment properties or temporary housing. Land or buildings used mainly to produce income, like a working farm, aren't eligible (7 CFR 3555.102). Manufactured homes have their own requirements, including a permanent foundation and HUD labels (7 CFR 3555.208). See manufactured home loans.
At loan approval, the household's adjusted income can't exceed the moderate income limit (7 CFR 3555.151(a)). The regulation defines moderate income as the greater of 115% of U.S. median family income, the average of the statewide and state non-metro median family income, or 115/80ths of the area low income limit adjusted for household size (7 CFR 3555.10). In practice, USDA publishes limits by county and household size on its eligibility site. I don't print them here because they change and depend on where the home is and who lives in it.
This is where most surprises come from. Annual income for eligibility is the income of all household members, whether or not they're on the loan (7 CFR 3555.152(b)). A working adult child who lives with you, or a partner who isn't borrowing, can push the household over the limit. The lender verifies income for each adult household member.
Some income is left out of the eligibility calculation, including earned income of household members under 18 who aren't applicants or spouses, foster care payments, gifts, and lump sums like inheritances (7 CFR 3555.152(b)(5)).
USDA then subtracts verified deductions to reach adjusted annual income (7 CFR 3555.152(c)):
A USDA file asks two separate questions. Eligibility uses adjusted household income. Repayment uses only the income of the people on the note (7 CFR 3555.152(a)). A household can pass the income limit and still not qualify on debt-to-income, or the reverse.
USDA's regulation sets two ratios. Housing costs, including principal, interest, taxes, insurance, HOA dues and the monthly share of the annual fee, generally can't exceed 29% of repayment income. Total debt generally can't exceed 41% (7 CFR 3555.151(h)(1)). The ratios can go higher with compensating factors, which USDA's automated system considers and which a manual underwrite must document (7 CFR 3555.151(h)(2)). See debt-to-income limits by loan type.
The lender looks at at least two years of income history and whether the income is likely to continue for at least the next three years (7 CFR 3555.152(a)).
Texas is a community property state. Under USDA's rule, a non-purchasing spouse's debts must be included in your ratios unless state law specifically excludes them (7 CFR 3555.151(h)(1)(iv)). See how community property affects a mortgage.
Approved lenders must process USDA loans through Rural Development's automated system, the Guaranteed Underwriting System (GUS), which helps evaluate risk but doesn't replace an underwriter's judgment (7 CFR 3555.107(b)). A file that GUS downgrades is manually underwritten, with compensating factors documented. Credit history is reviewed for patterns, and past events like bankruptcy or foreclosure have their own timing rules in USDA's handbook. For how scores work in general, see how mortgage credit scores work.
USDA isn't only for first-time buyers. A current homeowner can be eligible if all of these are true (7 CFR 3555.151(e)):
The loan can't exceed the lesser of the appraised value plus the upfront guarantee fee, or the purchase price plus eligible acquisition costs (7 CFR 3555.103). So when the appraisal comes in above the price, some closing costs may be financed within that limit. Eligible costs can include reasonable and customary expenses of getting the loan, essential household equipment that conveys with the home, and energy saving measures (7 CFR 3555.101).
Financing the full price isn't the same as nothing due at closing. Costs that can't be financed still have to be paid in cash, by an allowed seller contribution, or by a lender credit. Earnest money is usually applied toward your costs at closing, and it has to be sourced like any other funds.
The loan must carry a fixed rate for its full term (7 CFR 3555.104(a)).
USDA sets the fees each fiscal year. For FY 2027, it's 1.00% upfront and 0.35% annually for both purchases and refinances (USDA Rural Development, Sep 16, 2026). The upfront fee is figured on the loan amount and is usually financed. The annual fee is based on the average scheduled balance for the year and is typically collected monthly with your payment (7 CFR 3555.10, "Annual fee").
The annual fee works under USDA's rules. It isn't private mortgage insurance, so the Homeowners Protection Act cancellation points for private mortgage insurance don't apply to it. A fee quoted for this fiscal year says nothing about next year's.
After the lender approves the file, Rural Development reviews it and issues a conditional commitment. That step is unique to USDA, and timing depends on USDA's workload. Build it into the contract timeline.
USDA also warned that at the start of each fiscal year the program goes without funding for roughly a week. During that time, it issues conditional commitments "subject to the availability of commitment authority," lenders may close as scheduled, and USDA obligates the loans once funds arrive (USDA Rural Development, Sep 16, 2026). If USDA declares a shortage of funds later in a year, the regulation limits guarantees to first-time homebuyers and veterans until funds are restored (7 CFR 3555.107(a)).
The appraiser estimates market value and reports on condition. Items that affect whether the home is decent, safe and sanitary, like a failing roof, an inadequate heating system, or a well or septic system that needs work, have to be resolved before closing. Rural homes more often have private wells and septic systems, so testing or inspections are common.
If you already have a USDA loan, USDA's regulation allows a refinance into a new fixed-rate guaranteed loan at a rate no higher than your current one, on the same home you own and live in, with a current payment history for the 180 days before you apply. No cash out is allowed (7 CFR 3555.101(d)(3)). The regulation describes three paths:
What can be rolled into the new loan differs by path, and USDA's handbook fills in the details, so I confirm the current rules on each file. Texas homeowners who want cash out look at a different loan entirely.
This example is made up to show how the two tests work.
Jordan and Kayla are looking at two homes. One is inside Fort Worth city limits, and the USDA map shows it's not eligible. The other is in a small town in Parker County that is. On the second house, the lender lists everyone in the household: Jordan, Kayla, their two young kids, and Kayla's 20-year-old brother, who works full time and lives with them. His income counts for eligibility even though he isn't on the loan, and it pushes the household close to the county limit. The deductions for the two children and their documented daycare costs bring adjusted income back under. For repayment, only Jordan's and Kayla's income counts, and GUS returns an Accept. The file goes to USDA for the conditional commitment, and they close on the schedule they built into the contract.
Buyers looking at USDA usually compare it with FHA and low down payment conventional loans. Compare total cash to close, the annual fee or mortgage insurance, and how each one behaves over time. On some files USDA comes out ahead. On others, especially when household income is close to the limit or the address sits on the map's edge, another program is cleaner. For first-time buyer options in Texas, see who counts as a first-time homebuyer.
Thinking about a home outside the city? Send me the address and who lives in your household, and I'll check the USDA map and income limit before you fall in love with a house. Book a call, or start an application.
Links checked Oct 21, 2026.
About the author: McKade Lively, NMLS 2704474, American Pacific Mortgage Corporation dba True North Home Loans, NMLS 1850.
Equal Housing Opportunity.
Last reviewed: Oct 2026