VA and USDA Loans in Rural Minnesota: Who Qualifies and How to Use Them

TL;DR

• Both VA and USDA loans allow zero down. VA is for eligible veterans, service members and some surviving spouses; USDA is for moderate-income buyers in eligible rural areas, which covers most of West Central Minnesota outside the larger cities.
• VA charges a one-time funding fee of 2.15 percent on a first zero-down use and 3.30 percent on later uses, waived for many disabled veterans. USDA charges a 1 percent upfront guarantee fee and a 0.35 percent annual fee.
• USDA's 2026 base income limit is $122,800 for a household of one to four people. Both programs require the home to be your primary residence and require a water test on private wells.

The short answer

I'm Janet Matchinsky. Plenty of the homes around Alexandria, Long Prairie, Osakis, Glenwood and Willmar sit outside city limits, on wells and septics, in places that can qualify for USDA financing, so both loan types come up often in this part of the state. The short version is this: a VA loan often needs no down payment and carries no monthly mortgage insurance, with a one-time funding fee instead that many disabled veterans do not pay. If you are not eligible and your household income is under the USDA limit, a USDA Guaranteed loan can finance an eligible rural home with no down payment. Which loan costs you less depends on your situation, so ask a lender to compare a VA or USDA quote with a conventional one.

Below is who qualifies, what each costs, which properties pass, and how I write offers so sellers do not flinch at a government loan. When you are ready, start on the buyer page or look at homes for sale in Long Prairie and Osakis, two places to start an address-specific search and discuss financing with a lender.

VA loans

Who is eligible

Veterans, active-duty service members, National Guard and Reserve members who meet service requirements, and some surviving spouses. The lender confirms eligibility with a Certificate of Eligibility from the Department of Veterans Affairs, which most lenders can pull online in minutes.

What it costs

There is no down payment requirement and no monthly mortgage insurance. Instead the VA charges a one-time funding fee, which can be rolled into the loan (U.S. Department of Veterans Affairs):

Veterans receiving VA disability compensation, and certain surviving spouses, are exempt from the funding fee. On a $300,000 first-use zero-down loan the fee is $6,450; for an exempt veteran it is zero. Confirm the current rates with the VA link above, since Congress adjusts them.

Minnesota's mortgage registry tax of 0.23 percent applies to the recorded loan amount (Dept. of Revenue); VA does not exempt it. VA does limit which closing costs a veteran may pay, and sellers can pay concessions toward the rest.

Property rules

A VA appraiser checks the home against the VA's Minimum Property Requirements: safe, structurally sound and sanitary. Private wells and septic systems are allowed. On a private well the water must be tested and pass for coliform bacteria, nitrates and lead, and the property fails if the well sits within 100 feet of the septic system (Veterans United, VA well test requirements). A septic system needs to be functional; the appraiser looks for surfacing effluent and standing water and can require an inspection.

The home must be your primary residence. VA loans do not finance cabins or investment property, and there is no acreage limit as long as the land is typical for the area.

USDA loans

Two programs

USDA Rural Development runs two home loan programs for buyers in eligible rural areas (USDA Rural Development):

• Section 502 Guaranteed. A private lender makes the loan and USDA guarantees it. This is the one most buyers use. Income up to 115 percent of the area median.
• Section 502 Direct. USDA itself is the lender, for low- and very-low-income buyers, with payment assistance that can bring the effective rate down. Applications go through the USDA Rural Development office, which for Douglas, Grant, Otter Tail, Pope, Stevens, Todd, Traverse, Wadena and Wilkin counties is at 900 Robert Street, Suite 103, Alexandria (Minnesota ADR resource listing).

Income limits

For the Guaranteed program, USDA's 2026 limits effective July 13, 2026 set a base of $122,800 for households of one to four people and $162,100 for households of five to eight, with higher limits in some counties (USDA Procedure Notice 657 via Pennymac). The limit counts the income of every adult in the household, not just the borrowers. Check the exact figure for your county and household size on the USDA eligibility site.

What it costs

No down payment. An upfront guarantee fee of 1 percent of the loan, which can be financed, and an annual fee of 0.35 percent of the outstanding balance, paid monthly (USDA Rural Development). On a $250,000 loan that is $2,500 upfront and about $73 a month in the first year, well under typical private mortgage insurance for a low-down conventional loan. Minnesota's 0.23 percent mortgage registry tax applies.

Which properties qualify

The address must be in a USDA-eligible rural area. The program's definition is generous: the map excludes the larger cities and their suburbs and covers most of the small towns and open country in my service area. Because eligibility is drawn by boundary and can change, I check every address on the USDA property eligibility map before we tour, and you should too. A home a mile outside a city line can qualify while one inside does not.

Other property rules: primary residence only, which includes a year-round lake home (browse by lake) but not a seasonal cabin; no income-producing farms, though acreage that is typical for the area is fine; the home must be modest for the area and in sound condition. Private wells and septic systems are allowed, and USDA requires a water test on a private well and can require a septic evaluation, similar to VA.

Minnesota disclosures and both loan types

Whichever loan you use, Minnesota's seller disclosure law works in your favor. The seller must give you a written disclosure of known material defects before you sign (Minn. Stat. 513.55), disclose every well (103I.235), disclose how sewage is treated (115.55), and disclose radon test history along with the Department of Health's radon booklet (144.496). Read those forms with the appraisal rules in mind: a well within 100 feet of the drainfield, or a septic the seller admits backs up, is a problem you want to know about before the appraiser does.

Some Minnesota counties require a septic compliance inspection when a property transfers; Douglas County Land & Resource Management at 320-762-3863 can confirm the current rule for Douglas County. I recommend a compliance inspection on every well-and-septic home regardless of loan type.

Writing an offer with a government loan

Sellers sometimes hesitate at VA or USDA offers because they have heard the appraisals are strict or slow. Here is how I address that:

1. Full pre-approval, not pre-qualification. The lender has verified income, assets and, for VA, the Certificate of Eligibility.
2. A lender who closes these loans every month. Ask the lender how many VA or USDA loans they closed last year. An inexperienced lender is the real cause of most delays.
3. Reasonable timelines. I write 35 to 45 days for closing and set the inspection period to fit the water test, which must be completed by an approved lab.
4. Address the appraisal up front. If the home has peeling paint, a missing handrail or a bare deck ledger, we identify it and either ask the seller to fix it or plan the fix. VA and USDA appraisers flag the same things.
5. Seller-paid costs, clearly stated. Both programs allow seller concessions toward closing costs. On a zero-down loan that is often what makes the purchase work, so we ask for exactly what is needed and no more.

Since August 17, 2024, you will sign a written buyer representation agreement with me before we tour homes (National Association of REALTORS®). It spells out my fee, and whether the seller covers part of it is negotiated with each offer.

Combining with Minnesota Housing

Minnesota Housing's Start Up program can wrap a VA or USDA first mortgage and add a down payment and closing cost loan of up to $18,000 for eligible first-time buyers, defined as anyone without an ownership interest in a principal residence during the last three years (Minnesota Housing). On a zero-down loan that money covers closing costs, prepaids and the funding or guarantee fee. It must come through a participating lender, so ask the lender about it on the first call. Details are in First-time home buyer in Minnesota.

After closing

If you sold a home to make this move, or will, the home value tool and seller page cover that side. File for homestead with the county assessor by December 31 so the next year's taxes use the homestead rate (Minnesota Dept. of Revenue). Minnesota also offers a property tax exclusion for veterans with a service-connected disability rating, applied for through the same county assessor; the Douglas County Assessor's Office in Alexandria handles it for Douglas County. Ask about it when you file homestead.

If you used VA and later sell, the entitlement restores and you can use it again, at the later-use funding fee. If you used USDA, there is no restriction on selling; the loan just gets paid off.

Checklist

• Confirm VA eligibility with a Certificate of Eligibility, or USDA income eligibility for the whole household
• Check the property address on the USDA eligibility map before touring
• Choose a lender who closes VA or USDA loans regularly and is a Minnesota Housing participating lender
• Ask about the funding fee exemption if you receive VA disability compensation
• Budget the 0.23 percent mortgage registry tax and any non-allowable closing costs
• Get the seller's well, septic, radon and property disclosures
• Order the well water test and a septic compliance inspection during the inspection period
• Verify the well is at least 100 feet from the septic system
• Identify appraisal repair items before the appraiser visits
• Write seller concessions into the offer for closing costs
• File homestead and, if eligible, the disabled veteran exclusion by December 31

Talk to Janet

If you think you might qualify for a VA or USDA loan, call or text me at (320) 219-2488 and I will connect you with an experienced local lender and check the addresses you are watching against the USDA map. Start your search on the buyer page and tell me which loan you are considering.

Questions people ask

Is Alexandria, Minnesota eligible for a USDA loan?

Eligibility is drawn by boundary, not by town name, and the map changes over time. Check the exact address on the USDA property eligibility site before you tour; homes just outside the larger city limits often qualify while homes inside do not.

What is the VA funding fee in 2026?

For a zero-down purchase it is 2.15 percent of the loan on first use and 3.30 percent on later uses, dropping to 1.50 percent with 5 percent down and 1.25 percent with 10 percent down. Veterans receiving VA disability compensation are exempt.

Can I use a VA or USDA loan on a home with a well and septic?

Yes. Both programs allow private wells and septic systems. The well water must pass a lab test for bacteria, nitrates and lead, the well must be at least 100 feet from the septic system, and the septic must be working.

What is the USDA income limit in Minnesota?

USDA's 2026 base limit for the Guaranteed program is $122,800 for households of one to four people and $162,100 for five to eight, counting every adult's income in the household. Some counties are higher; verify yours on the USDA eligibility site.

Can I combine a VA or USDA loan with Minnesota Housing down payment help?

Yes, if you qualify as a first-time buyer under the three-year rule and use a Minnesota Housing participating lender. Start Up adds up to $18,000 for closing costs and prepaids on top of a zero-down first mortgage.