If you new to the USDA loan, you heard correct that is the U.S. Department of Agriculture lending money , it is really one of the best loan programs out there for borrowers that are unwilling to or cannot come up with the required 3.5% deposit  for an FHA loan which is one of the most common loan programs for 1st time home buyers. The commonly called Rural Housing mortgage has to fall within boundaries set by USDA. In the midwest suburbs , such as the Nashville real estate market, this is lesser an complication than many areas of the country to find property that fall within the set boundary limitaions . However in mostly urban area it might not be as easy . The rural housing mortgage is one of the most buyer friendly programs for individuals who want to purchase a property with no money out of pocket . If you can negotiate with the current owners to pay for all closing cost and prepaid taxes and insurance ( tipically 2.5-3% will cover it), individuals can truely purchase a home with nothing other than a escrow deposit  they can get get back at  closing. The best part is that there is no mo. mortgage insurance which save owners $100 or more a month. There is additionally no upfront mortgage insurance premium like FHA loans which is 2.25% of the mortgages amount. However there is guarantee fee like a VA loan that on September 8, 2010 was announced to be increased from current 2.054% to 3.5% by USDA head Tammy Trevino when announcing continued funding for the mortgage program.  Just like an FHA or VA loans this fee can be and typically is charged into the loan. To put this into perspective, in comparing to a FHA mortgage , the increase in the funding fee (USDA) in comparison with the upfront Mortgage insurance (FHA) will quickly balanced by a FHA mortgage’s .55% month mortgage insurance (.55% of loan amount/12).  So actually after just a few years a  owner will be better off with the USDA loan by saving mortgage insurance premium monthly .