USDA loans and down payment assistance programs are the two main ways to buy a home in Michigan with little or nothing out of pocket. A USDA Guaranteed loan allows 0% down for buyers in eligible areas whose household income stays within 115% of the area median, and it charges a 1.00% upfront guarantee fee plus a 0.35% annual fee.

Down payment assistance works differently: it’s a second loan or a grant layered on your first mortgage to cover the down payment, closing costs, or both, and in Michigan the largest source is MSHDA. Learn more about USDA loans and down payment assistance, including income limits, property eligibility rules, and how MSHDA stacks on your first mortgage.

Key takeaways:

• USDA in one line: A USDA Guaranteed loan finances 100% of the purchase price with no down payment for buyers in eligible areas whose household income stays within 115% of the area median.
• The fee math: USDA charges a 1.00% upfront guarantee fee, which can be financed into the loan, plus a 0.35% annual fee, below the 0.55% annual premium FHA charges most borrowers, though like FHA’s it runs for the life of the loan unless you refinance out.
• Assistance is separate from the loan: Down payment assistance is a second loan or grant layered on your first mortgage, so it pairs with conventional, FHA, VA or USDA financing, and eligibility is set by a state or local agency rather than by the lender.

What is a USDA loan, and how does it work?

A USDA loan is a mortgage guaranteed by the U.S. Department of Agriculture that lets buyers in eligible areas finance 100% of a home’s purchase price with no down payment. The guarantee covers part of the lender’s loss if the loan defaults, which is why a lender will write a $0-down mortgage it otherwise wouldn’t. Our guide to USDA loan basics walks the mechanics line by line.

What trips up buyers is that “USDA loan” names two programs inside USDA Rural Development’s single-family housing programs, and only one involves a mortgage lender.

• Section 502 Guaranteed: A private lender makes the loan and USDA guarantees it. This is the version brokers place and the subject of this page, and USDA lets the upfront fee be financed above the appraised value, the reason you’ll hear it called 101% financing.
• Section 502 Direct: USDA itself is the lender, serving low- and very-low-income households. Payment subsidies can cut the effective rate to as low as 1%, with terms up to 33 years, 38 for very-low-income applicants. You apply at a Rural Development office.

The honest version: no broker or bank can place a Section 502 Direct loan, because that application goes straight to USDA. If your income sits near your county’s low-income limit, apply there and compare it against the Guaranteed loan we can shop for you. USDA sits in the same family as the other government-backed loans, and it’s the one most retail banks quietly don’t write.

USDA eligibility: Income limits, property location, and credit

Three tests decide a USDA file, where the home sits, what the household earns, and whether the lender’s credit standards clear you. The first two take about five minutes to check.

Is my property in a USDA-eligible area?

“Rural” here is a legal definition, not a description of the landscape. Under the Housing Act of 1949, an eligible area generally caps at 2,500 people, 10,000 if it’s rural in character, or 20,000 outside a metro area short on mortgage credit, and grandfathered communities keep eligibility through the 2030 census if they stay under 35,000. Translated: ordinary subdivisions with sidewalks and cul-de-sacs qualify all the time. Check the exact address on USDA’s eligibility map before you write an offer, because the boundary can run down the middle of a street.

What are the USDA income limits?

Household income generally can’t exceed 115% of the area median for the county, and “household” counts every adult living there including a working adult child whose name never appears on the note.

What USDA measures is adjusted annual income, not gross pay. The calculation subtracts $480 per qualifying dependent, $400 for an elderly household, and eligible childcare, disability and, for elderly or disabled households, medical expenses above 3% of annual income. Those deductions pull plenty of families back under a limit they assumed they’d blown, and county limits are updated periodically, so verify the current figure for yours.

What credit score do I need for a USDA loan?

USDA publishes no minimum credit score, but 640 is the practical line. Its handbook treats a validated 640 score as meeting the program’s credit-reputation standard; below that, the file needs a cautious full-history review that far fewer lenders will take on. If you’re under 640 today, FHA loans reach to 580 with 3.5% down.¹ Our credit and qualifying hub covers how to move a score first. Overlays differ across Align’s wholesale network too, so a file declined at one lender is often approvable at the next.

What a USDA loan costs vs. FHA and conventional

On a no-money-down file, USDA is usually the cheapest monthly option open to a civilian buyer: its 0.35% annual fee sits below the 0.55% annual premium FHA charges most borrowers, and nothing is required down. VA loans beat every program here, but only for eligible veterans, service members and surviving spouses.²

Program	Minimum down	Upfront fee	Annual insurance or fee	Can it be removed?
USDA Guaranteed	0%	1.00%, financeable	0.35%	No. It runs for the life of the loan; refinancing is the exit
FHA	3.5%	1.75%, financeable	0.55% for most borrowers	Only at 90% loan-to-value or less at origination, then after 11 years
Conventional, 3% down	3%	None	PMI, priced by credit score and loan-to-value	Yes on request at 80% of original value, automatic at 78%

Say you’re buying a $240,000 home in Lapeer County with nothing down. The 1.00% guarantee fee adds $2,400, financed rather than paid at the table, so you close on about $242,400. The 0.35% annual fee runs roughly $848 in year one about $71 a month.³

Honest counterpoint: USDA isn’t automatically cheapest. A buyer with 5% down and a 760 score often beats it with conventional financing, because strong-credit PMI prices low and eventually cancels while the USDA annual fee never does, and at 3% down the Conventional 97 loan deserves a quote too. Compare total cost across the full menu of mortgage loan types, using the head-to-head math in our loan comparisons hub.

What’s changed recently in USDA loan programs

As of August 2026, USDA’s upfront guarantee fee remains 1.00% and the annual fee remains 0.35%, the structure in place since USDA cut fees from 2.75% and 0.50% effective October 1, 2016. Those rates are set fiscal year by fiscal year, so re-verify them before relying on any published number, this page included.

• Income limits move: The 115% standard holds, but the dollar limits behind it are recalculated as area median incomes change. A household that was over the line last year is worth re-running.
• The eligible-area map gets refreshed: Eligibility follows census data, and grandfathered communities hold status through the 2030 census. An address that failed years ago is worth re-checking.
• Underwriting policy gets revised: USDA updates its guaranteed loan handbook through the year, including how files run through GUS, its Guaranteed Underwriting System.

Because those move independently, we keep a running list of recent changes to USDA loan programs rather than letting an old answer stand.

Down payment assistance: How state and local programs stack on your mortgage

Down payment assistance doesn’t replace your mortgage, it sits behind it as a second lien or grant covering the down payment, closing costs, or both, and Michigan’s largest program tops out at $10,000. Because it comes from a separate agency, it rides on top of conventional, FHA, VA or USDA financing, pairing naturally with low-down-payment mortgages. Our guide to state-specific mortgage assistance programs maps the national picture, and HUD’s homebuying and assistance resources list the agencies state by state.

Forgivable second mortgages

• How it works: A second lien with no monthly payment that forgives part of the balance each year you stay, until it hits zero.
• Common qualifications: First-time buyer status, an income cap, a sales price limit, homebuyer education.
• Who it’s best for: Buyers confident they’ll stay past the forgiveness window, usually five to ten years.

Deferred-payment second loans

• How it works: A zero-interest second lien with no monthly payment that stays quiet until you sell, refinance, or pay off the first mortgage. Then the full balance is due.
• Common qualifications: Income and sales price limits, a minimum credit score, pairing with the agency’s own first mortgage.
• Who it’s best for: Buyers who need cash now and accept that this is borrowed money. Michigan’s MI 10K DPA is this type.

Grants

• How it works: True gift funds with no lien and no repayment, usually funded by a lender, a Federal Home Loan Bank, or a municipality.
• Common qualifications: Tighter income limits, and often a specific first mortgage, some lenders attach closing-cost grants to HomeReady mortgages.
• Who it’s best for: Anyone who qualifies, which is why grant funds run out fastest.

Employer and nonprofit programs

• How it works: An employer, hospital system, university or nonprofit contributes toward down payment or closing costs, sometimes with a stay-employed condition.
• Common qualifications: Employment with the sponsor, or buying inside a defined neighborhood.
• Who it’s best for: Buyers who never think to ask, these rarely get advertised outside an HR portal.

Read the trade-offs first. Deferred and forgivable loans come due if you sell or refinance early, most require homebuyer education, and many cap the liquid assets you can hold at closing. And the quiet one that sinks the most files: not every first-mortgage lender is approved for every assistance program. Confirming that pairing before you write an offer is a big part of what a broker does here.

What Michigan buyers should know

Michigan runs one of the more usable assistance systems in the country through MSHDA’s homeownership and down payment assistance programs, and it layers cleanly onto USDA financing in the parts of the state where USDA works best.

• MI Home Loan: MSHDA’s flagship first mortgage pairs with conventional, FHA, VA or USDA financing, requires a 640 minimum credit score and a housing education class from a MSHDA-approved provider, and carries income limits that vary by county and household size plus a statewide sales price limit of $566,355 after June 1, 2026.
• MI 10K DPA Loan: Up to $10,000 toward down payment, closing costs and prepaid expenses as an interest-free second mortgage with no monthly payment, available statewide. MSHDA defers repayment until you pay off the first mortgage, sell or refinance the home, or stop occupying it, and the loan must be paired with a MI Home Loan. MSHDA also applies income and asset limits set in its program guidelines, so confirm the current figures with your loan officer.
• Programs open and close: MSHDA runs limited-funding pilots alongside its standing programs, and those pilots stop taking reservations once the money is committed. That’s why we check live availability on every file rather than quoting last year’s list, our state assistance rundown tracks what’s open now.
• USDA territory is wider than buyers assume: Much of the Thumb, mid-Michigan and the northern Lower Peninsula maps as eligible, while the Metro Detroit and Grand Rapids cores do not. A house 20 minutes outside a suburb can qualify when one two miles away doesn’t.

Because Align is a broker, we can place USDA and MSHDA loans through partner lenders even though many retail banks offer neither, and price a MSHDA-paired file against a straight conventional file, the comparison our guide to choosing the right mortgage type walks through.

FAQ: USDA loans and down payment assistance

Here are answers to common questions about USDA loans and down payment assistance.

Do I have to live on a farm to get a USDA loan?

No. “Rural” is a legal definition based on population and location, not a description of the land, plenty of ordinary subdivisions, small-town neighborhoods, and outer-ring suburbs sit inside USDA-eligible territory. In Michigan, much of the Thumb, mid-Michigan, and the northern Lower Peninsula qualifies, while the Metro Detroit and Grand Rapids cores do not. Check the exact address on USDA’s property eligibility map before you assume either way, since the boundary can run down the middle of a road.

Can I use down payment assistance with a USDA loan?

Often, yes, though it works differently than you’d expect. Because USDA already requires no down payment, assistance is usually applied to closing costs and prepaid escrows rather than a down payment. Program rules vary and not every first-mortgage lender accepts every assistance program, so the pairing has to be confirmed before you write an offer. That compatibility check is a big part of what a broker does on these files.

What credit score do I need for a USDA loan?

USDA sets no minimum credit score, but 640 is the practical threshold because it’s the score most lenders require to run your file through GUS, USDA’s automated underwriting system. Below 640 the file has to be manually underwritten, which fewer lenders will do and which brings tighter scrutiny of your payment history and reserves. This is exactly the kind of requirement that varies lender to lender rather than coming from USDA itself.

Is down payment assistance a grant I have to pay back?

It depends on the program. Grants are true gifts and are never repaid. Forgivable second mortgages are erased after you stay in the home a set number of years. Deferred second loans, including Michigan’s MI 10K DPA, charge no interest and require no monthly payment, but the full amount comes due when you sell, refinance, or pay off the first mortgage. Read the repayment terms before you accept any assistance offer, and check our roundup of first-time home buyer grants and programs for which type each one is.

The bottom line on USDA loans and down payment assistance

A USDA Guaranteed loan finances 100% of the purchase price with no down payment for buyers in eligible areas whose household income stays within 115% of the area median, at a 1.00% upfront guarantee fee and a 0.35% annual fee, below the 0.55% annual premium FHA charges most borrowers. Down payment assistance is the other lever: a second lien or grant stacked on conventional, FHA, VA or USDA financing to cover the cash you’d otherwise bring to closing, with MSHDA’s $10,000 program the largest source in Michigan.

If you’re ready to see whether USDA or MSHDA fits your file, talk to Align Lending, we’ll shop your scenario across our lender network and show you the numbers side by side. Call 248-506-5727 or start online today.

Footnotes:

1. Align Lending is not acting on behalf of or at the direction of FHA or HUD. Back to text
2. Align Lending works with VA-approved lenders and is not endorsed or sponsored by the Department of Veterans Affairs or any government agency. Back to text
3. Example figures are hypothetical and for educational purposes only; they do not constitute an advertisement of credit terms or a rate quote under federal or state lending laws. Your rate and terms will depend on your application and market conditions. Back to text

This article is for informational purposes only and is not intended to provide legal, financial, or tax advice. Consult a qualified professional about your situation. Program terms, fees, credit score minimums, and assistance amounts shown are illustrative, are not a rate quote or an offer of credit, and are subject to lender overlays, agency updates, and change. Align Lending is not acting on behalf of, endorsed by, or sponsored by FHA, HUD, the Department of Veterans Affairs, USDA, or MSHDA.