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USDA Loans for First-Time Buyers

Buying your first home can be overwhelming. Using a program designed for you first home purchase can help.

USDA loans are one of the best choices for first-time home buyers thanks to 100% financing, low rates, and no private mortgage insurance. Backed by the U.S. Department of Agriculture as part of its USDA Rural Development Guaranteed Housing Loan program, USDA loans are available to low-to-moderate-income home buyers who are purchasing a home in a USDA-eligible area.

Benefits for first-time home buyers include:

No Down Payment Required

USDA loans are one of the few loan programs that allow a borrower to put nothing down. USDA loans can offer 100% financing because they are backed by the U.S. government. The USDA guarantee provides lenders a safety net in case the borrower defaults on the loan. Because of this decreased risk to lenders, USDA home loans offer 100% financing and low interest rates.

This feature has helped many people access homeownership who otherwise would not have been able to purchase a home. It’s especially helpful for first-time home buyers who might be struggling to come up with a down payment.

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Low Mortgage Insurance

Although borrowers are not required to make a down payment, they are responsible for a 1% guarantee fee that can be rolled into closing costs. Additionally, USDA home loans include a 0.35% annual mortgage insurance (MI) fee paid in monthly installments.

For example, a home buyer who purchases a $100,000 home with nothing down would pay a $1,000 mortgage insurance premium as part of their closing costs, plus a monthly mortgage insurance payment of $29.17.

The good news is that compared to other loan programs, like FHA, USDA loan fees are usually lower, which can help first-time home buyers secure a lower monthly payment. Also, borrowers do not have to pay PMI like they do with FHA or conventional loans when putting less than 20% down.

Low Interest Rates

In addition to zero percent down, eligible borrowers will also benefit from low interest rates. Once again, this has to do with the loans being backed by the USDA. With much of the lending risk removed, banks and mortgage companies can offer lower rates to home buyers. USDA loans have some of the lowest rates available compared to conventional or FHA loans.

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How much home can I afford?

If a USDA loan sounds like it might be the right option, you might be wondering, "How much can I truly afford?" It can be tricky to determine what makes sense with your budget – especially for first-time home buyers. You'll need to consider multiple factors, including your income, any debts, your down payment (which isn’t required with a USDA loan), homeowner's insurance, and property taxes.

Who is Eligible?

First-time home buyers should understand that USDA loans have certain eligibility requirements. To qualify for a USDA loan, home buyers must:

  • Purchase a home in a USDA-eligible area
  • Have a preferred minimum credit score of at least 640
  • Meet the income limits for the area
  • Occupy the dwelling as a primary residence
  • Be a U.S. citizen, U.S. non-citizen national or qualified alien
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Apply for a USDA Loan

To help determine what you can afford, use our mortgage calculator. With access to real-time rates, you can customize your information and get an accurate snapshot of what your monthly payment might be.

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