The Truth About 0% Down USDA Loans in 2026 | Pros & Cons

What loan program, if you're not a veteran, allows you the lowest rates across the board, the lowest monthly mortgage insurance, and ask for zero zero down payment? I'm going to tell you what it is right now. USDA, it's the USDA loan program. It's the sleeper among all the four choices that you have as a first-time home buyer. We're going to break it all down today. I'm going to give you an example of why you would want it if you're if you're eligible for it. And I'm also going to show you if you are eligible for it, why you wouldn't want it, and uh other factors that you need to know about. So share this with your family and friends as always, and let's kick off this rodeo right now. Hi folks, I'm Kevin Fagan. the mortgage patriot on your side, nestled here in the Hill Country, above San Antonio, Texas, and serving all you proud Texans and all you great folks all around the country. Another great one, because why? Because I have yet to really focus on this one loan, and I'm going to show you the big reason why, but there's only four choices for a first-time home buyer. It's the VA loan, which is the king of them all, but most people aren't veterans. That you have the conventional loan, you have the FHA loan, and you have the USDA loan. We're going to talk about the USDA loan today. So, as I do that, please hit the like and subscribe. It really helps me bring my videos to the forefront. It helps you, it helps me, it helps everybody in the Patreon nation. So, hit the like and subscribe and let's get into all that great content right now. Here's the quick flow of this video as we talk about the USDA loan. We're going to talk about the eligibility of it. If you're not eligible for it, obviously you don't need to worry about it, but I'm going to tell you if you're trying to buy outside metropolitan areas, 97% chance you're going to be eligible for it. So, we're talk about the eligibility. We're going to talk about the guidelines and the pros and cons versus an FHA versus a conventional loan, for example, and we'll use examples along the way. So, let's get into that right now. Okay. A mortgage patriot, why have you not mentioned the USDA loan before? Well, I have actually in, you know, in parting in comparison, but not not haven't done a dedicated video. In either case, there's two main reasons. One is eligibility. The second is you just simply can't buy as much home compared to the other uh loan programs. I'll get into that. So, the eligibility is that you can only be eligible for this loan if you're buying a property outside of dense metropolitan areas, outside of city limits typically. Okay? But for people that are doing that, virtually every property is going to be eligible for you. So, here's where you go knowing right away. Type in this this link right here, copy it somehow, put it in a browser, and go to this website, the USDA website. You're going to see on the left hand side a button called single family housing guaranteed. Hit that button right there. You'll see a button below it saying eligibility. Hit that button. Once you hit that button, you'll be able to plug in the actual address or maybe even the the zip code, but I think it's just you have to know the address of the property and it'll tell you right away if that if that house uh that property is available for you. Hopefully that makes sense. Here's a quick map kind of of central Texas and slightly to the east showing the availability of the USDA program. You'll notice kind of a triangle there with Austin on the top, Houston to the right, and San Antonio to the left. The shaded areas covering those little cities. Those are the ineligible USDA areas. Everything else is eligible. That's a ton of properties out there. There's a ton of little towns, rural areas, all eligible, all 100% eligible for the USDA loan. So, your your circumstances are going to be the same. Wherever you're living outside of the city limits, it's going to be eligible for the USDA. Let's talk briefly about the credit scores that are required by the USDA relative to the other loan programs. And then I'll show you the why, the two big advantages of that USDA loan program. And then I'll show you, of course, the one big disadvantage and why I haven't recommended it to this point. Okay. So, credit scores, simple enough, right? Uh, on an FHA loan, you're only required to have a 580 score. Now, likely, it's easier to get qualified on the basis of a 620, but theoretically 580 could work. On a conventional loan, hard stop at 620 or less. So, we got to get you at a 620 or more. And then you'll see on the right side there, the the USDA loan requires the highest of all the credit scores. It requires a 640. That's because the the loan is a zero down situation. and the and so the government's funding you 100%. They want to be very conservative and make sure you have a a better score than just 620. So if you're not at 640 already, don't worry about it. I can get I have got plenty of ninja tricks up my sleeve uh to help you get to that spot. It's just time and action steps. Time and action steps to always move your scores. So let me help you with your scores and we'll get you into whatever loan program is best for you. Let's get to the two big reasons why you'd want to uh access the the USDA loan if it's eligible for you. And the biggest one is zero as in zero down payment. And just like a v a veterans loan, a VA loan has zero down payment. The USDA loan also zero down payment requirement. So let's take an easy example. $300,000 home. Okay. $300,000 home on an FHA loan requires three and a half% down. 3.5% of 300,000 is 10,500. That's a pretty decent sized check to write in addition to your closing cost and your prepaids and escros. Remember, the down payment is just bucket number one of three buckets. Okay? So, on a conventional loan, normally it's 5%. Sometimes I can get you down to 3% depending on your income, but let's say it's 3%. 3% of 300,000 is $9,000. That's still a hefty down payment. USDA loan 300,000 of zero is zero. So, you're saving anywhere from 9,000 to 10 a.5,000 at least just on the down payment portion of all the cash and close you're going to need. Incredible deal on the USDA. again if it makes sense for you. So what's the second big advantage of the USDA loan? Well, it's got the lowest monthly mortgage insurance. Uh absolutely over the FHA and the conventional loan. So let's take an example. On a $300,000 loan, if your credit score is around 660, you know, let's just take it that example. You're going to see a monthly payment on USDA loan of about $87.50. Compare that with the FHA loan, which is about $50 more at $137.50. 50 and compare that to the conventional loan which is even far more expensive than the USDA loan at $212.50. So that's over $125 more on the conventional loan and $50 more on the FHA loan. So your monthly payment on the USDA is going to be your lowest probably because your rate is also going to be the same roughly as your FHA loan. So when you compare the all these on a monthly basis, the total monthly tab is going to be less in the USDA loan. Just remember that it's a big advantage. So once again, why would you not want to use the USDA loan if you could? And here's the unfortunate answer is because they greatly restrict your purchasing power. Let me show you what I mean. Unfortunately, because it's a very conservative loan, meaning the government does not want you to default on this, and they're doing everything they can to prevent you from defaulting. So, they restrict your debt to income. You can't have near as much debt as you can with the FHA loan or the conventional loan. Okay? So, given let's say, look at this example here. Let's say assume a $75,000 household income. Okay? $75,000 of household income will buy you currently at today's rates a $300,000 house approximately in the f with an FHA loan. In other words, you could qualify for $300,000 using FHA. Using a conventional loan with today's range, you could only qualify for about $280,000, a fair amount less. But look, unfortunately, at the USDA loan, not good news, folks. $220,000 would all you'd be able to qualify for on the same $75,000. That is why I have not talked about the USDA loan much before because in most cases you get down to the wire and people say, "Well, you know, I really want to buy more home given my income." Well, then we have to go to the FHA world, which is fine, but it just doesn't allow you to have that no, you know, 0% down and that low monthly mortgage insurance figure. So, sorry folks, that's the bad news on the USDA. Let me close this out by showing you a really good example of how to use the USDA loan at its maximum benefits. Let's take a $80,000 household. You're able to buy a $225,000 home outside the city limits. You put zero down. You still have bucket number two, bucket number three at closing, which is going to be about $9,500, at least in the state of Texas. $9,500. Now, you can get seller concessions. I talk about frequently in my other videos. That's critical. It's kind of like down payment assistance, but it comes straight from the selling party, right? And you're allowed up to 6% on a USDA loan, which is great. So, let's say you could even get 4%. 4% of $225,000 is $9,000. So, in other words, h from a check that you would normally have to write for $9,500 as we take out the $9,000 from the seller contributing to your closing cost, you only have to write a check for about $500. So using an FH USDA loan along with maximizing it as much as you can your seller concessions, you should be able to slash I mean absolutely slash your cash to close. You should be able to buy a $225 to $250,000 home, even a $300,000 home writing a check for less than $2,000 frequently. That's that happens to me all the time. So uh call me if you want uh 2110317-6514. Text me. Uh, I'll be glad to see uh if you're eligible for the USDA if it makes sense for you. We'll just figure out what's best. So, as always, I'm Kevin Fagen, the mortgage patriot on your side. Make it a great one. END OF TRANSCRIPT