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USDA vs. FHA loans
These programs offer home loans to low-income applicants but strict criteria and mortgage fees apply.
For those with low income or poor credit, qualifying for a mortgage can be a challenge. Government-backed USDA and FHA loans are designed to connect applicants with low- and no-down-payment loan options — but not every borrower and property qualifies.
How do USDA loans and FHA loans compare?
While both USDA and FHA loans are backed by the federal government, these loan programs have their own distinct features and lending requirements.
USDA loans are backed by the United States Department of Agriculture. They’re fixed-rate mortgages that don’t require a down payment or private mortgage insurance. To qualify, borrowers must meet strict income requirements, agree to use the property as their primary residence and select a property located in a community of 35,000 people or less.
FHA loans are backed by the Federal Housing Administration. They’re available to applicants with credit scores as low as 500 who might not qualify for a conventional loan. A minimum down payment of 3.5% is required along with both an upfront and ongoing mortgage insurance premium.
| USDA | FHA | |
|---|---|---|
| Credit score requirement | As low as 640 | As low as 500 |
| Maximum loan amount | Up to $706,910 | Up to $765,600 |
| Down payments | As low as $0 | As low as 3.5% |
| Interest rates | As low as 1% | As low as 1% for a direct loan |
| Repayment terms | 15- to 30-year fixed-rate | 15- to 30-year fixed- or adjustable-rate |
| Mortgage insurance | Not required | Required |
| Geographical limitations | Located in a rural area with a population less than 35,000 | Available nationwide |
| Property uses | Owner-occupied | Owner-occupied |
Learn more about USDA loans | Learn more about FHA loans |
Choose a USDA loan if:
You have a credit score of at least 640 and are interested in a qualifying rural property. While the no-down payment perk of a USDA loan may be attractive, you’ll need to meet the income restrictions and debt-to-income ratio criteria of your property’s location.
Avoid this loan type if:
You don’t plan to live in a rural area, have poor credit or exceed your area’s income eligibility criteria.
Choose an FHA loan if:
You can’t qualify for a conventional loan due to poor credit. Borrowers with credit scores as low as 500 can qualify for an FHA loan with down payments as low 3.5%. But mortgage insurance premiums are required and not all providers offer FHA loans.
Avoid this loan type if:
You have strong credit and can qualify for a conventional mortgage. Upfront and ongoing FHA mortgage insurance premiums can make this an expensive option in the long run.
Bottom line
Government-backed USDA and FHA loans offer borrowers with less income and lower credit scores the opportunity to purchase a property. But strict eligibility criteria and insurance premiums serve as a reminder that these loan programs aren’t for everyone.
Review your home loan options with a range of lenders for the funding that best meets your needs.
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