FHA Mortgage Or USDA Residence Mortgage: Which Is Greatest For You?
What is the difference between FHA mortgages and USDA home loans for the same type of property? Both FHA and USDA mortgages are available for single-family homes, and both programs allow you to apply for a 30-year fixed-rate mortgage with lower interest rates and more flexible credit requirements than some traditional loans.
What Makes FHA and USDA Mortgages So Different?
One important factor is who will qualify for each type of loan. USDA mortgages are specifically designed for low to middle income borrowers looking for affordable housing.
USDA mortgages have price limits and household income limits that affect the overall creditworthiness of the borrower.
FHA mortgages have no such restrictions and are designed for any financially qualified borrower regardless of their household income limit.
USDA loans provide a no-money-down option that FHA mortgages don’t, but USDA loans are not available for all areas – the location of the home you buy with a USDA loan can make all the difference whether or not you qualify for the mortgage.
FHA home loans do not have such restrictions on where you can buy the home outside of the usual considerations for specific natural disaster areas, coastal barrier resource systems or protected areas, etc.
While FHA mortgages do not allow for no-money home loans, the borrower is allowed to get approved down payment assistance, mortgage loan certificates, and other assistance.
FHA borrowers can also negotiate with the seller to have the seller pay up to six percent of the borrower’s closing costs. The seller is NOT allowed to help with the deposit.
FHA loans can be used in the city, in the country, and anywhere a single family home could reasonably be located. USDA loans are for rural property, and those looking to buy a home in a large city can find a VA, conventional, or FHA loan instead of a USDA mortgage.
Both FHA and USDA loans are offered by participating lenders. Both have minimal FICO score requirements that are also subject to lender standards, and both FHA and USDA mortgages require mortgage insurance that is not the same as home equity insurance.
If you are not sure which type of home loan is right for you, discuss your needs and goals with a participating lender.
Be sure to ask about the minimum FICO score, income caps, and purchase price restrictions for USDA mortgages, and your refinancing options with both programs.