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FHA loans vs USDA loans

The differences between an FHA and USDA loan

FHA and USDA loans help make buying or refinancing a home more affordable. Both these loan types offer you competitive interest rates and lower down payment requirements compared to most conventional loans.

There are important differences however. Any homebuyer can be eligible for an FHA loan. Only homebuyers in rural and some suburban communities are eligible for USDA loans.

FHA loans typically have lower minimum credit score requirements but have higher minimum down payments and more expensive mortgage insurance.

USDA loans usually have higher minimum credit scores, but you can often buy a home without a down payment and the mortgage insurance fees are usually less expensive. Look at this comparison table:

Features FHA Loans USDA Loans
Eligibility All Homebuyers Rural and Some Suburban Homebuyers only
Minimum Credit Scores Often 550 Often 640
Minimum down payment As low as 3.5% Often 0%
Upfront Mortgage Insurance / Fee 1.75% 1%
Monthly Mortgage Insurance / Fee Often 0.45% to 1.05% 0.35%
Property Type Restrictions Primary Homes Only Primary Homes Only
Streamline Refinancing Yes Yes

What are the benefits of FHA loans versus USDA loans?

The primary benefits of FHA loans are their broad eligibility rules, low down payments, and low credit scores. You can use an FHA loan to buy or refinance a home anywhere in the United States. The low minimum down payment and credit score requirements make owning a home more affordable.

These benefits come with higher mortgage insurance premiums compared to USDA insurance fees, however. Both the upfront and monthly insurance premiums for FHA loans are typically more expensive than the guarantee fees of USDA loans. Learn about FHA mortgage insurance premiums.

What are the benefits of USDA loans versus FHA loans?

The primary benefits of USDA loans are their 0% down payments for many homebuyers and less expensive guarantee fees compared to the mortgage insurance premiums of FHA loans.

USDA loans have more narrow eligibility rules versus FHA loans however. Only rural and some suburban homebuyers can finance a home with a USDA loan. USDA loans typically have higher minimum credit scores too, which makes qualifying for them harder.

Are there benefits and requirements FHA and USDA loans share?

Yes. FHA and USDA loans have the following requirements in common:

  • Fixed rates. You can get a fixed rate with FHA and USDA loans.
  • Property restrictions. You are mostly limited to financing only primary homes with FHA and USDA loans.
  • Financing restrictions. Program rules typically limit you to having one FHA or USDA loan at a time.
  • Appraisal requirements. There are minimum property requirements the house needs to meet before we’ll approve financing it with an FHA or USDA loan.
  • Easier streamline refinancing. You can often refinance FHA and USDA loans with less paperwork and faster closings using the streamline program.

Freedom Mortgage is a top FHA lender in the United States according to Inside Mortgage Finance, Jan.–Sept., 2023.

Last reviewed and updated August 2023 by Freedom Mortgage Corporation.

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