USDA VS FHA Loan Program

March 14, 2017

Both the USDA and FHA loan programs are great zero to low down payment options for first time home buyers. Furthermore, USDA and FHA loans have flexible qualifying guidelines and offer low interest rates for people with less than perfect credit. The USDA is hands down the best program if you are looking to purchase your first home in a small town or rural area.


USDA better program vs FHA

  1. Down Payment-USDA requires zero down payment and FHA is 3.5% down. Now you may say that you want to lower your payment by putting some money down but the fact of the matter is that you only lower your payment approximately $50 per month for every $10,000 you put down don a house based on today’s mortgage rates. So, if you are strapped for cash and you have a hard time coming up with a down payment then USDA is a better way to go and your principal and interest portion of your loan payment is only a few dollars higher.
  2. Mortgage Insurance-USDA monthly and upfront mortgage insurance is much lower than FHA. The monthly mortgage insurance is about 2.5 times higher for FHA than USDA and upfront mortgage insurance for FHA is 1.75 times higher than USDA. Now, for the really interesting part which most people do not know. The payment on a zero down USDA loan is lower than the payment on a FHA 3.5% down payment loan because of the lower mortgage insurance fees charged by USDA. Why would you want to put down 3.5% down and pay a higher payment? EXACTLY!
  3. Minimum Credit Score-The FHA program has a slightly lower minimum credit score of 600 versus 620 for USDA to qualify for their respective programs but USDA is a little more flexible if you don’t have much traditional credit history.
  4. Income, Loan, and Property Restrictions-First of all, you must purchase a home in a targeted rural area for a USDA loan but you can purchase a home anywhere in the United States with an FHA loan. Second, USDA has income restrictions for household income which varies by each county and FHA has no income restrictions which means you can make 1 million dollars per year and still qualify for an FHA loan. Finally, there are no loan limits for the USDA program and FHA has maximum loan limits by county.

USDA offers a lower down payment, mortgage insurance, and monthly payment than FHA but you need to meet the income guidelines and you must buy a home in a rural area to qualify for the program. So if you live in the big city and you want to move to the country or you already live in a small town then you need to check out the USDA program. The first step is to get pre-approved and complete the online application and we will get back to you to discuss your pre-approval and how the home buying process works. Also, if you have any questions you can call us at 847-721-4865 or email dream@firsthomebuyers.net.