We often get the question of which government program would be better, FHA or USDA? A quick search on the internet will give you a general view of each program’s benefits. Most of them suggest the USDA loan would be the better choice, assuming you meet the two key eligibility requirements – see below.
Please contact us 7 days a week with questions about either program by calling Ph:800-743-7556 or just fill out the quick Info Request Form on this page.
Please find the newly updated FHA Mortgage Insurance Chart here.
| Criteria | Loan Type | |
| FHA | USDA | |
| 1. Down Payment | 3.5% | 0% |
| 2. PMI | 0.55% (As of March 2023) | 0.35% |
| 3. Funding Fee * | 1.75% | 1.0% |
| 4. Limits (loan) | Varies by location | None, Set by Debt Ratios |
| 5. Limits (income) | None | YES |
| 6. Restricted location | None | YES |
| 7. Credit score | 580 (max 96.5% financing) | 600-620 most cases |
*Funding Fee, or “Up Front MIP” fee for both programs are rolled into the overall loan. These costs above assume the max loan to value: 96.5% for FHA, 100% for USDA
There are a few other points that put the USDA at an advantage over the FHA mortgage program such as the appraisal value. First, USDA is 100% financing which is the big draw. Second, USDA has a cheaper upfront Guarantee fee and also cheaper monthly insurance costs. Third, with most home purchases the appraised value is normally slightly higher than the selling price.
If the appraisal value is more than the purchase price, this becomes an additional advantage for borrowers as USDA will permit you to raise the home purchase price and keep a portion of the “excess” to help pay for minor repairs or closing costs. So again, overall out-of-pocket costs will be less with USDA when compared to FHA.
So what’s the catch with UDSA loans? The only drawbacks of the USDA Rural Development loans are the restriction of location and the household USDA income limits. FHA does not have either restriction. The location must be in a designated rural area with a limited population per Rural Housing. This will be an issue for buyers living in populated Florida cities like Jacksonville, Orlando, Tampa, Miami, etc. However, many of the outside suburbs of the large cities are still eligible, but not the main city.
In fact, some even opt for the FHA as they believe the transportation costs incurred in the loan’s term under a USDA mortgage will amount to the same, if not more than the FHA’s loan. Buyers can view the USDA eligibility property map here. *Remember, the important thing is the location of the home, not who is selling the home. Contact us to learn more about your area.
Additionally, the USDA‘s income limit imposed on a buyer is currently set at 115% of the median or average income of the area where your home is to be located. That means those who have a higher income than the average in town would have to opt for mortgage loans under the FHA or through a conventional lender if they so decide to live in a rural area.
Regarding the rates as well as the guidelines in qualifying potential borrowers, the FHA and USDA are just about equally matched. However, the USDA, unlike the FHA, allows borrowers to finance the whole purchase price and include any closing expenses as well into the loan.
Lastly, all government loans offer secure fix rate terms. Some have 15 years, 30 year and adjustable rates. USDA has only 30 year fix interest rates.
Contact today to learn more about all Government-backed mortgage offerings like FHA, USDA and VA.