Written by Joe Hooker Development Manager & Content Author NMLS #1289086

Reviewed by Emily Kittle Underwriter & Expert Reviewer

September 18, 2025

USDA Home Loan Rates

USDA Direct Loan Rates

The U.S. Department of Agriculture exclusively funds USDA direct loans, meaning borrowers must apply directly through the USDA and cannot obtain these loans from private banks or mortgage companies (like Neighbors Bank).

Today’s USDA direct loan rate is 5.125% (effective September 1, 2025). The USDA periodically adjusts this flat rate and may tailor it to each borrower’s situation. In addition, payment assistance can reduce the effective interest rate to as low as 1%, depending on the borrower’s income and need.

Why are USDA direct rates lower?

USDA direct loan interest rates are typically lower than USDA guaranteed and other mortgage loans because they are subsidized by the U.S. Department of Agriculture (USDA). This means the USDA covers part of the interest to keep rates artificially low and make the loan more affordable.

Keep in mind that USDA direct loans are only available to low- and very low-income borrowers who make less than 80% of the median income in a USDA-eligible area.

Learn more about USDA guaranteed vs. USDA direct loans.

What Factors Affect USDA Guaranteed Loan Rates?

Similar to most mortgage loans, USDA guaranteed loan interest rates are set by private lenders. Rates vary based on several factors, including:

1. Market Conditions – USDA loan rates are influenced by overall economic factors, such as the Federal Reserve's monetary policy, inflation, and bond market performance. When market rates rise or fall, USDA loan rates typically follow suit.
2. Lender Pricing and Competition — Because private lenders issue USDA guaranteed loans, each lender sets its own rates based on its pricing models, risk appetite, and market competition. Borrowers may find slightly different rates from different lenders.
3. Credit Score – Higher credit scores generally qualify for lower interest rates since lenders view these borrowers as lower risk. While USDA loans are available to those with lower credit scores, a strong credit profile can secure better pricing.
4. Discount Points – Borrowers can choose to pay discount points upfront to reduce their interest rate over the life of the loan.

USDA Loan Rate Trends

​USDA interest rates have experienced fluctuations over the past decade, influenced by broader economic conditions and monetary policies. Following the COVID-19 pandemic, rates reached historic lows in 2020 and 2021, with 30-year fixed-rate mortgages averaging around 2.65% in January 2021. However, starting in March 2022, the Federal Reserve began raising the federal funds rate to combat rising inflation, leading to increased borrowing costs across various loan types, including USDA loans. By mid-2023, rates had climbed significantly, with the average 30-year fixed-rate mortgage reaching approximately 7.09% in October 2023. As of September 2025, USDA loan rates have stabilized somewhat, with current rates around 5.125%. These trends highlight the sensitivity of mortgage rates to economic shifts and central bank policies.

By February 2025, the 30-Year Fixed Rate USDA Mortgage Index stood at approximately 6.385%. These trends reflect the USDA's commitment to adjusting loan rates in response to economic shifts, ensuring that agricultural producers and rural homeowners have access to necessary capital while maintaining alignment with national financial policies.​

USDA Loan vs. FHA, VA, & Conventional Loan Rates

Loan Type	Interest Rates Trends (on average)	Unique Eligibility Requirements
USDA	Typically lower than conventional and FHA	Only for medium- to low-income borrowers buying in rural or suburban areas
FHA	Typically lower than conventional	No unique requirements. FHA loan limits and FHA mortgage insurance apply
VA	Typically lower than USDA, FHA, and conventional loans	Eligible Veterans and service members only
Conventional	Typically higher than USDA, FHA, and VA loans	No unique requirements*; conventional loan limits and private mortgage insurance apply

*Most conventional loans do not require unique eligibility requirements other than the financial qualifications required by private lenders. However, Fannie Mae’s HomeReady and Freddie Mac’s Home Possible offer low down payment conventional loan programs that require borrowers to meet certain income limits.

How to Get The Best USDA Loan Rate

Securing the best USDA mortgage rates can significantly impact your monthly payments and the total cost of your loan over time. Here are some strategies:

1. Improve Your Credit Score: A higher credit score shows USDA lenders that you're a lower risk, often resulting in better interest rates. Pay down debts, make all payments on time, and correct any errors on your credit report to improve your score.
2. Buy Down Your Rate with Points: You may be able to lower your interest rate by paying for discount points upfront. Ask your lender if buying points makes sense for your budget and long-term goals.
3. Monitor Rate Trends: If your buying timeline is a bit longer, you can monitor rate trends and current news to try and spot the best deal. Sign up for our email newsletter to stay up to date with the most current USDA loan rates.

Rate Assumptions

Mortgage Rates and APR calculations valid as of 2025-09-18 10:19:09 CST. Mortgage rates update at least daily. Not all loan types are available in every state. All rate availability will depend upon an individual’s credit score and details of the loan transaction. The interest rates presented are subject to change at any time and cannot be guaranteed until locked in by your Loan Officer.

All rates assume an owner-occupied primary residence not including condos or manufactured homes, and are calculated using a default credit score of 700 (which may be changed through our interactive drop-down menu and any change to the default credit score may result in a change in the displayed rate) with applicable charges and fees (including the USDA Guarantee Fee on USDA mortgages) included. The loan rates and APR calculations also assume certain additional facts according to the type of loan described.

Fixed-Rate Loan Assumptions:

In addition to assumptions above, current advertised rates for fixed rate purchase loans assume a $160,000 loan amount and a 30-day lock period. Fixed rate refinance loans assume a $160,000 loan amount and a 45-day lock period.

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Written by:
Joe Hooker
Development Manager & Content Author
NMLS #1289086
Joe Hooker is the Development Manager at Neighbors Bank, bringing over 10 years of experience in the industry. Joe thrives in process-oriented work, with a passion for helping employees grow into valuable team members. He finds great fulfillment in building relationships with employees as they navigate a new industry, watching them mature from new hires to experienced professionals. Challenges, such as developing recruitment and training processes for a remote workforce have been both rewarding and exciting for Joe, as he continuously works to improve these systems.

Reviewed by:
Emily Kittle
Underwriter & Expert Reviewer
Emily Kittle brings over a decade of experience in the mortgage industry, having worked in nearly every part of the residential lending process. Since starting her career in 2010, she has held roles in processing, funding, quality control, underwriting, training, and risk advisory. Before joining Neighbors Bank, she was a Risk Advisor Team Lead at another mortgage company, where she developed a deep expertise in risk assessment and loan decision-making.