The U.S. Department of Agriculture (USDA) supports homeownership opportunities for low- and moderate-income Americans through several loan, grant and loan guarantee programs. For qualified borrowers, USDA loans are provided directly through USDA Rural Development or from an approved lender.
Use this calculator to estimate what your monthly payment might be for a USDA mortgage.
How to Use the USDA Mortgage Calculator
To use this calculator, you’ll need to input values for some basic information including your estimated home price, down payment, loan term (in years) and interest rate.
USDA loans typically don’t require a down payment, but you can enter an amount to see how much less your monthly payments might be if you chose to put money down.
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What Costs Are Included in a USDA Mortgage?
As with any other mortgage, there are costs associated with getting a USDA loan, though some are included as part of your monthly mortgage payments.
- Principal: This is the amount of money you borrow from the USDA or an approved lender to buy a house.
- Interest: The added cost of the loan, which you pay as part of your monthly loan repayments. Over time, with interest, you will owe more than just the original principal amount you took out.
- USDA guarantee fees: The USDA requires lenders to pay a nonrefundable guarantee fee upfront, which is usually passed on to the borrower. The fee won’t exceed 3.5% of the principal loan amount.
- Property taxes: Property taxes are taxes charged by your local government based upon the value of your home. They are usually collected as part of your monthly mortgage payment and then paid to the relevant authority via your escrow account.
- Homeowners insurance: A homeowner’s insurance policy covers any losses and damage to your home. You’ll have to get one to show the lender that your property (and their investment) is protected if something unexpected happens, like a fire.
Note: You don’t have to get Private Mortgage Insurance (PMI) with a USDA loan. Instead, you pay a 1% upfront fee or roll it into your monthly mortgage payment. Your monthly mortgage payment will also include a small USDA annual fee of 0.35%.
How to Qualify for a USDA Loan
These are some of the requirements you must meet to qualify for a USDA loan:
Property Type
You must live or plan to live in an eligible rural area to qualify for a USDA loan. In addition, if you’re applying for a direct loan from the USDA, the home you wish to buy must:
- Be 2,000 square feet or less
- Not have market value in excess of the relevant area loan limit
- Be your primary residence
Income
Income limits for USDA loans vary by program and location. For guaranteed loans, your income can’t exceed 115% of the median income for your area. Income limits for direct-issue loans are much lower—as low as 50% of the median income in certain areas.
Debt-to-income (DTI) Ratio
To qualify for a USDA loan, your total debt-to-income (DTI) ratio should be no more than 41%. Additionally, your monthly housing-related expenses (mortgage payments, taxes, etc.) can not exceed 29% of your income.
Credit Score
USDA does not mandate a minimum credit score, but the agency requires that a potential borrower must:
- Be without decent, safe and sanitary housing
- Be unable to obtain a mortgage loan from other resources on terms and conditions that can reasonably be expected to meet
- Have the legal capacity to incur a loan obligation
- Meet citizenship or noncitizen requirements
- Be able to participate in federal programs
Most lenders will have minimum credit requirements for all the mortgage loan products they offer, so check with your lender to see if you meet their threshold.
Is a USDA Mortgage Right for Me?
A USDA loan is meant to help low- and very-low-income borrowers get a foot on the property ladder, especially those who have no other way to afford to buy a home. If you fall into this category, then a USDA loan could be right for you.
However, if you aren’t eligible—for instance, maybe the house you want doesn’t fit the USDA requirements—then you’ll need to explore other affordable loan options. Plus, the no-down-payment nature of a USDA loan also means it will take you longer to repay the loan.
USDA Loan vs. Conventional Mortgages
One of the primary advantages of a USDA loan is a lower interest rate compared to a conventional mortgage. USDA loans are also available to borrowers with credit scores too low to qualify for a conventional mortgage.
Frequently Asked Questions (FAQs)
What is a USDA loan?
USDA loans are issued or guaranteed by the Department of Agriculture as part of its Rural Development program. The goal is to promote homeownership in rural areas by offering very affordable mortgages to low-income borrowers.
Where can I get a USDA loan?
If you meet the income limits, you can apply for a loan directly from the USDA, otherwise, you can work with a USDA-approved financial institution. Forbes Advisor has compiled a list of the best USDA mortgage lenders that offer competitive interest rates, low APRs, discounts and more.
What are the interest rates for a USDA Loan?
As of August 1, 2022, interest rates for USDA loans range from 3.25% up to 6%, depending on your lender, credit and other qualifying factors. However, interest rates can be as low as 1% when modified by payment assistance, according to the USDA.
Why get a USDA mortgage loan?
If you live in a rural area, have a low income or don’t have enough money for a down payment, then the best way to get a mortgage is to apply for a USDA loan. Because these loans are insured by the federal government, the lender is willing to provide you with more favorable loan terms. The low interest rate, as well as no PMI, means your monthly payments will be much more affordable compared to a conventional mortgage.
