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Look, I'm gonna level with you. When most folks think about buying a home with little money down, their mind jumps straight to FHA loans. But here's the thing nobody talks about, USDA loans often beat FHA hands-down if you qualify. And way more properties are USDA-eligible than you'd think.
Last month, I had a couple ready to put 3.5% down on an FHA loan for a house in Rockwall. We ran the numbers on a USDA loan instead. Zero down, lower monthly insurance costs. They saved that $6,000 down payment for furniture and kept an extra $75 per month in their pocket. That's real money.
But choosing between USDA and FHA isn't always obvious. The programs have different rules about where you can buy, how much you can earn, what credit scores work, and what you'll pay each month. Here's exactly how these loans compare in 2025 so you can figure out which one actually fits your situation.
Both USDA and FHA loans fall under the government-backed mortgage umbrella, but they're run by completely different agencies with different goals.
USDA loans come from the U.S. Department of Agriculture's Rural Development program. Their whole purpose is encouraging homeownership in rural and suburban areas to maintain population and economic health in these communities. The government backing means lenders can offer incredible terms. Zero down payment, lower insurance costs, because the USDA guarantees the loan if you default.
FHA loans are insured by the Federal Housing Administration, which operates under the Department of Housing and Urban Development. These loans were designed during the Great Depression to make homeownership accessible to regular working families who couldn't afford huge down payments or didn't have perfect credit. The FHA doesn't lend money directly, they insure loans made by approved lenders against losses according to USA.gov housing information.
Here's what matters. Both programs are non-conforming loans, meaning they don't have to follow Fannie Mae and Freddie Mac guidelines. They write their own rules. And those rules can work heavily in your favor if you know how to use them.
In fiscal 2024, approximately 82.64% of FHA-insured purchase transactions went to first-time home buyers, according to Finance Monthly's 2025 mortgage analysis. That's huge. USDA loans serve anyone who qualifies, whether it's your first home or your fifth, as long as you haven't owned property in the last three years in most cases.
This is where USDA loans really shine.
USDA loans require absolutely no down payment. You can finance 100% of the home's appraised value. Not "low down payment." Not "reduced down payment." Zero. Nothing. Nada.
For buyers struggling to save while paying rent and managing other expenses, this changes everything. That $8,000 you would've needed for a 3.5% down payment on a $230,000 house? Keep it. Use it for moving costs, immediate repairs, building your emergency fund, whatever you need.
And here's something most people don't know. If your home appraises higher than the purchase price with a USDA loan, you can sometimes use that extra appraised value to cover closing costs. That's right, you might buy a house with literally zero cash out of pocket if the numbers work.
FHA loans require a minimum 3.5% down payment if your credit score is 580 or higher. Got a score between 500-579? You'll need to come up with 10% down according to Experian's FHA loan analysis.
Let's do the math real quick:
That's a pretty clear winner if you qualify for USDA. But, and this is important, FHA loans work anywhere in the country. USDA loans only work in eligible rural areas, which brings us to our next major difference.
USDA loans are restricted to properties in USDA-designated rural areas. Now, before you picture a farmhouse miles from civilization, let me clarify something. The USDA's definition of "rural" is way broader than you think.
In the Dallas-Fort Worth area where I work, tons of suburban communities qualify. We're talking places with Target, Starbucks, good schools, 20-minute commutes to downtown. Rockwall, parts of Frisco, Anna, Prosper, areas around Fort Worth. These aren't out in the sticks.
The USDA basically defines "rural" as anywhere that's not the densest urban core of major cities. You won't find USDA-eligible properties in downtown Dallas or downtown Fort Worth proper, but move 15-20 minutes out? You've got options.
You can check if a specific address qualifies using the USDA's property eligibility tool. Just plug in the address and it'll tell you immediately if that property works for USDA financing.
FHA loans have zero location restrictions. City, suburb, rural area, doesn't matter. You can buy an FHA-eligible property anywhere in the country. This flexibility makes FHA loans the fallback option when USDA doesn't work due to location.
But keep in mind, FHA loans still can't be used for investment properties or vacation homes. It's gotta be your primary residence where you'll actually live. Same rule applies to USDA loans.
USDA loans were designed for low-to-moderate income households, which means you can't earn too much to qualify. Your household income can't exceed 115% of the area median income where you're buying.
For 2025, the standard USDA income limits are:
But these are just the standard limits. They vary significantly by location based on local cost of living. Some rural areas have limits as low as $91,900 for smaller households. High-cost areas like certain California counties allow income up to $147,900 or higher for 1-4 person households according to DSLD Mortgage's USDA analysis.
Wait, I need to mention something crucial here. The USDA counts total household income, not just the loan applicant's income. That means if you're buying a house and your adult brother lives with you, his income counts toward the limit even if he's not on the loan. Full-time students get capped at $480 of countable income, and elderly household members may have adjustments, but generally, every working adult in the home gets included in the calculation per Neighbors Bank USDA guidelines.
The USDA reviews and potentially updates these limits annually, typically in late spring (May or June). If you're borderline, timing your application could matter.
FHA loans have zero income restrictions. You could earn $50,000 or $500,000, doesn't matter for eligibility purposes. The FHA just wants proof that you have stable income and can afford the mortgage payments, insurance, taxes, and other housing expenses.
This flexibility makes FHA loans ideal for moderate-to-higher income buyers in urban areas where USDA loans don't qualify, or for anyone whose household income exceeds USDA limits.
Here's something interesting. The USDA technically doesn't set a minimum credit score for guaranteed loans. But lenders almost always require a minimum score of 640 for automated underwriting approval.
If your score is under 640, you'll need manual underwriting, which adds time to the process and requires compensating factors like significant cash reserves, low debt-to-income ratio, stable employment history, or a co-borrower with stronger credit according to USDA Loans article.
FHA loans officially accept credit scores as low as 500, but here's the reality:
Many FHA lenders, including AmeriSave, set their minimum credit score at 580 for practical underwriting reasons. So while the FHA technically allows scores down to 500, finding a lender who'll work with you below 580 can be challenging.
That said, FHA loans are generally more forgiving with credit issues, past bankruptcies, foreclosures, and other credit events than conventional loans. The key is demonstrating that whatever caused the credit problems is behind you and you've reestablished responsible credit management.
USDA loans technically have no maximum loan amount. Instead, your borrowing limit is determined by your ability to repay based on income, debts, and the USDA's debt-to-income ratio guidelines, typically 41% or less.
This sounds great in theory, but practically speaking, the income limits constrain how much you can borrow anyway. If you're at the upper end of USDA income eligibility, you can typically qualify for loans in the $300,000-$450,000 range depending on your specific financial profile.
FHA loans have specific maximum loan amounts that vary by county based on local housing costs. For 2025:
These limits increase for multi-unit properties. A duplex, triplex, or fourplex where you'll live in one unit has higher limits than a single-family home according to Rate's FHA loan information.
You can look up your specific county's FHA loan limit using HUD's mortgage limits search tool online.
This is where USDA loans really stand out again. Here's exactly what you'll pay with each program.
USDA loans charge what's called a "guarantee fee" instead of mortgage insurance, but it serves the same purpose, protecting the lender against default.
Upfront fee: 1% of the loan amount, can be financed into the loan
These fees stay with you for the entire loan term. There's no dropping them after reaching a certain equity level like with some other loans.
Example calculation for a $250,000 USDA loan:
FHA loans require mortgage insurance premium (MIP) that's higher than USDA's guarantee fees.
FHA MIP Structure:
The annual MIP stays for the life of the loan unless you put down 10% or more at closing, in which case it drops off after 11 years according to Neighbors Bank FHA insurance guide.
Example calculation for a $250,000 FHA loan:
Side-by-side comparison:
Over 30 years, that's about $15,000 in savings. Not insignificant.
The FHA actually reduced their annual MIP from 0.85% to 0.55% in March 2023, making FHA loans more affordable than they used to be. Before that reduction, the monthly difference was even larger per First Residential FHA analysis.
Both programs look at your debt-to-income ratio, which is basically how much of your monthly income goes toward debt payments including the new mortgage.
USDA: Typically requires a DTI of 41% or less. Some flexibility exists with compensating factors like excellent credit, cash reserves, or minimal other debts.
FHA: Generally allows DTI up to 43%, sometimes higher with automated underwriting approval and strong compensating factors. FHA tends to be slightly more flexible here, especially for borrowers with higher credit scores.
Quick DTI example: If your gross monthly income is $6,000, a 41% DTI means your total monthly debt payments including the new mortgage payment, car loans, student loans, credit cards can't exceed $2,460.
USDA loans go through underwriting twice, first by your lender, then by the USDA itself. This double-checking process adds time to your loan approval.
For automated underwriting through the USDA, you need a credit score of 640 or higher. Below 640, you'll go through manual underwriting, which takes even longer and requires more documentation and compensating factors.
Expect USDA loans to close in 30-45 days, sometimes longer if there are any complications or high application volumes in your area's USDA office. I've seen some take 60 days when the local USDA office had a backlog.
FHA loans are underwritten by the lender following FHA guidelines. The FHA doesn't review each individual loan, they simply insure loans that meet their standards.
FHA loans typically close in 30-45 days, similar to USDA loans, but sometimes slightly faster since there's no second underwriting step. The timeline depends heavily on how quickly you provide required documentation like pay stubs, tax returns, bank statements, employment verification.
Both processes start with getting preapproved, which I always recommend before you start house hunting. Sellers take you more seriously, you know your budget, and it speeds up the whole process once you find a home.
Both loan types require appraisals, but with different criteria.
A USDA appraiser must verify:
That 30% site value rule can trip up buyers looking at homes on large lots. If you're buying a modest house on 10 acres, the land value might push you over that threshold.
FHA appraisers must determine:
FHA property standards cover things like functioning heating systems, safe drinking water, adequate electrical systems, structurally sound foundation, secure handrails on stairs, proper ventilation. Anything that poses health or safety risks needs to be fixed before the loan can close.
Neither program requires an independent home inspection, but I always recommend getting one anyway. Appraisals focus on value and minimum standards. A good home inspector finds the stuff that'll cost you money later. The roof that'll need replacing in three years, the HVAC system that's on its last legs, foundation issues, you get the idea.
Let me give you some practical scenarios where each loan makes the most sense.
Honestly? If you qualify for both, I'd go USDA nine times out of ten. The savings on down payment and mortgage insurance usually outweigh any minor inconveniences in the process. But geography and income limits make that decision for a lot of buyers.
Interest rates have settled into a different pattern than the rock-bottom rates we saw in 2020-2021. As of mid-2025, USDA Direct Loan rates for low-income buyers are fixed at 5.00%, while USDA Guaranteed Loans through approved lenders run closer to 6-7%, comparable to conventional loans according to Bankrate's USDA information.
FHA rates usually stay in the same range, but they can be a little higher because of the mortgage insurance part. Your credit score, debt-to-income ratio, the lender you choose, and the state of the market all affect the exact rate you'll get.
I tell every buyer to look around with at least three lenders. For the same borrower, different lenders may give them rate quotes that are off by half a percent or more. That half percent may not seem like much, but over 30 years on a $250,000 loan, it could mean the difference of about $40,000 in total interest costs. So, yes, look around.
Let me set the record straight on some things I hear all the time.
I may be biased, but AmeriSave has both USDA and FHA loans with low rates and a simple application process. We are approved by both the USDA and FHA, which means we know what each program needs and can help you choose the one that works best for you.
We can show you side-by-side scenarios so you can see exactly how much each loan will cost you in terms of down payment, monthly payment, insurance costs, and total interest over the life of the loan. The numbers are sometimes close, but other times one program clearly wins. In either case, you'll have all the information you need to make a sure choice.
Our loan officers are licensed in more than one state and work with people from all walks of life and situations. We can help you with your mortgage, whether you're a first-time buyer or someone who has bought before but needs help figuring out government loan options.
What you can afford and where you're buying will help you decide between a USDA loan and an FHA loan. USDA loans are hard to beat for buyers in rural and suburban areas who don't have a lot of savings or income that falls within the caps. It's an amazing deal: no down payment, lower insurance costs, and competitive rates.
FHA loans are also very important for a different reason. They can be used for multi-unit properties, work anywhere in the country, have no income limits, and accept lower credit scores. FHA loans make it possible for millions of people to buy a home each year when nothing else will work.
Don't just assume that one is better than the other without checking your own numbers. If you qualify, talk to a loan officer and get prequalified for both. Then, see how much your monthly payments would really be. That's how you know what to do instead of just guessing.
And don't forget that buying a house is a big deal, probably the biggest financial decision you'll ever make. Take your time, learn about your options, and ask questions until you understand. A good loan officer will sit down with you and go over this information as many times as you need to hear it. That is what they do for a living.
Are you ready to look into your options? If you think USDA or FHA is better for you, start your application with AmeriSave and we'll work together to find the best way to move forward.
Yes, most of the time. Some people think that the USDA loan program is only for first-time buyers, but that's not true. When you apply for a USDA loan, you can't own another home right now. There are some exceptions, though. For example, if you're moving for work or if you own property in a different area that you're moving from. You can definitely get a USDA loan if you owned a house five years ago, sold it, and don't own any property now. You just have to meet the other requirements, like having a low income, a good credit score, and buying in a rural area that is eligible. You can only use a USDA loan to buy a home that you will live in as your main residence, not a vacation home or investment property. I've helped a lot of people who used to own homes get USDA loans when they moved to rural areas or their financial situation changed. No matter what your past homeownership history is, the most important thing is to show that you meet the current eligibility standards.
For buyers with limited cash, seller concessions can cover up to 6% of your closing costs with both USDA and FHA loans. But here's something that not many people know about USDA loans that makes them special. Sometimes you can use the extra value your home appraises for to pay for closing costs if it is worth more than what you paid for it. For example, if you buy a house for $200,000 and it is worth $210,000, If you get a USDA loan, you might be able to borrow up to 100% of the appraised value and use the extra money to pay for closing costs. This isn't a sure thing, and it depends on underwriting approval, but it's an option that FHA loans don't have. FHA loans only let you borrow the amount of the purchase price plus the upfront mortgage insurance premium. The total closing costs for either program are usually between 2% and 5% of the loan amount. These costs include things like title insurance, appraisal fees, credit report costs, origination fees, and prepaid taxes and insurance. However, the fees up front are different. The USDA charges 1% up front, while the FHA charges 1.75%. This means that for a $250,000 loan, the USDA charges $2,500 up front, while the FHA charges $4,375. With FHA, that's almost $2,000 more that gets added to your loan amount.
A lot of USDA buyers, especially younger ones who expect to move up in their careers and make more money, are worried about this question. Good news! After you close on your USDA loan, you can make as much money as you want without it affecting your loan. The USDA only cares about how much money you make when you apply for and close on the loan. They don't check your tax returns every year to see if you got a raise or keep an eye on your income after closing. It doesn't matter if you get a big promotion the day after you close and double your salary. The income limits are only there to figure out if you can get into the program in the first place. This can be confusing if you're applying and your income is on the edge of being too low. In that case, timing is important. The USDA uses current documents like pay stubs and W-2s to guess how much money your family will make in the next year. If you know you're going to get a big raise or bonus that will put you over the income limit, you might want to apply before that money comes in. But once you close on the loan, you're all set. Adding people to your household who make money after closing won't change your existing loan. The income limits are only a way to get into the program at first; they don't stop you from getting in later.
Sadly, no. You can't refinance an existing non-USDA mortgage into a USDA loan through the USDA program. If you want to use USDA refinancing options like the USDA Streamline Refinance, you need to already have a USDA mortgage that you want to refinance into another USDA mortgage. This is not the same as FHA, VA, and conventional loans, which let you refinance from other types of loans. You can't switch from an FHA loan to a USDA loan through refinancing if you already have an FHA loan and realize you could have saved money with a USDA loan. The only thing you could do is sell the house and buy a new one with a USDA loan, which isn't practical in most cases. But the other way around works. If you want to refinance your USDA loan, you can either do a USDA Streamline refinance into another USDA loan or a conventional loan if you have enough equity, which is usually 20%. Many people who borrow money from the USDA switch to a conventional loan after a few years when they have built up equity, especially if home values have gone up a lot. This is because conventional loans don't require mortgage insurance once you have 20% equity. But refinancing from FHA to USDA? Not allowed by the rules of the program right now. If you're trying to decide between the two for a home purchase and think USDA might be better in the long run, now is the time to make that choice, not after you've already closed with FHA.
Yes, but there are some limits. You can use the USDA Repair Escrow to add the cost of certain repairs and improvements to your loan amount. This is not the same as an FHA 203k renovation loan, which is only for big repairs. With USDA, the repairs have to be small and necessary for the home to meet USDA property standards or appraisal requirements. Things like putting on a new roof, upgrading the electrical system, fixing foundation problems that were found during the inspection, and putting in a septic system if necessary are all things we're talking about. The repairs are added to your loan amount, and the money is kept in an escrow account until the work is done. You can only borrow so much money for repairs, usually between $15,000 and $20,000, depending on what your lender needs. If you're interested in a property that needs a lot of work done to it, like major renovations or structural work that a repair escrow can't cover, FHA might be the better choice because their 203k program is made for bigger rehab projects. With FHA 203k, you can get a loan that covers both the cost of buying a home and the cost of fixing it up. This can be up to $50,000 or more in repairs. So, if you're thinking about buying a fixer-upper, you should look into both options. USDA's repair escrow works well for small repairs that need to be done to meet property standards. FHA 203k is probably the best option for major additions or gut rehabs.
Both programs are more lenient than regular loans when it comes to credit problems from the past, but there are still some things that will stop you from getting a loan. You usually have to wait at least two to three years after your bankruptcy discharge to qualify for a USDA or FHA loan. This depends on whether it was Chapter 7 or Chapter 13. Most of the time, foreclosures need a three-year waiting period from the end of both programs. Short sales might have a shorter waiting period, like two years with proof of extenuating circumstances. The most important thing is to show that whatever caused the credit event is over and that you have been managing your credit responsibly since then. You'll need to show that you made your payments on time on any new credit accounts, kept your job stable, and kept your debt levels under control. Recent collections or charge-offs that are still open will definitely disqualify you. Most lenders will only approve your loan if you pay off those debts or set up payment plans. If you have federal tax liens, you usually can't get government-backed loans until you pay them off in full. If you don't pay back your student loans, you'll have to either get them up to date or set up an approved repayment plan. If you've been late on payments in the last 12 months, especially on big accounts like car loans or existing mortgages, you may need to write explanation letters and provide reasons for the late payments. If your overall financial picture is good, the automated underwriting systems might approve loans even if you've missed a few payments recently. However, this is not always the case. In the end, both FHA and USDA will work with you even if you've had credit problems in the past. They just need to see that you've changed your ways and are now handling your credit responsibly.
This is an important difference that changes what you can buy with each program. You can only use USDA loans to buy single-family homes. You can't buy a duplex, triplex, or fourplex with a USDA loan. You have to live in it as your main home, and it has to be a traditional single-family home. The property also needs to be small, simple, and cheap for the area. You can't use a USDA loan to buy a fancy house or a McMansion. They want to see simple, low-cost housing that helps the program's goal of helping families with moderate incomes. I also talked about the 30% site value rule, which says that the land can't be worth more than 30% of the property's total value. Loans from the FHA are more flexible when it comes to the types of property. You can buy a multi-unit property with an FHA loan, up to four units, as long as you live in one of the units and rent out the others. A lot of first-time home buyers and real estate investors use the "house hacking" method to make money from their mortgage payments by renting out their homes. FHA loans can also be used for condos, as long as the condo complex is FHA-approved. This means that the HOA has to meet certain financial and insurance requirements. If they meet certain building codes and are permanently attached to the land, manufactured homes and mobile homes can get FHA loans. You can't use either loan type for investment properties, vacation homes, or second homes because both programs require that the property be your main home.
Yes, you can use gift money to pay for your down payment and closing costs with both USDA and FHA loans, but the money must come from acceptable sources. Family members, employers, labor unions, charities, government agencies, or close friends who have a clear interest in you can give you gifts for FHA loans. The person giving the money needs to write a gift letter saying that the money is a gift and not a loan that needs to be paid back. You'll need to show where the gift money came from and where it went by providing bank statements. With USDA loans, you don't need to put any money down, so you don't need gift money for the down payment. However, you can use gifts to pay for closing costs. Family members, employers, labor unions, charitable organizations, or government agencies are usually acceptable gift donors for USDA loans. The requirements for the gift letter are similar to those for FHA loans; they show that it's a gift and that the person giving it doesn't expect to be paid back. This is something important. You can't always get all of your money from gifts. Most lenders want to see that you've put some of your own money into the deal, even if it's only $500 or $1,000. This shows that you are financially responsible and know how to handle money. Down payment assistance programs that are only for first-time buyers who don't have any money saved up might be an exception. These programs usually work well with both USDA and FHA loans, and they can help you pay for your down payment and closing costs with grants or loans with no interest.
For most borrowers in 2025, mortgage rates have settled in the 6% to 7% range. This is a lot higher than the historically low rates we saw during the pandemic years of 2020–2021. But here's the deal. Which program you choose has a lot less to do with your specific rate than your credit history, down payment, and debt-to-income ratio. For most borrowers, USDA and FHA rates are usually within a quarter-point of each other. The ongoing mortgage insurance costs are where USDA loans will save you the most money, not necessarily the interest rate itself. Over time, that 0.35% annual guarantee fee for USDA versus 0.55% annual MIP for FHA adds up to a lot of money. If you take out a $250,000 loan, the difference is about $40 a month, or $500 a year, or $15,000 over the course of 30 years. Some lenders might offer slightly better rates on FHA loans because they do more FHA business and can compete on price, while USDA loans might not be as important to them. That's why it's so important to shop around with different lenders. You might see one lender offering USDA loans at 6.5% and another at 6.75%, but their FHA rates are the same. It's more about the lenders' overlays and pricing strategies than the programs themselves that make the difference. If you qualify, get rate quotes for both programs, compare the total monthly payment including insurance, and look at the total cost over 5 to 7 years since most people refinance or sell before paying off a 30-year mortgage. Sometimes a higher rate with lower monthly insurance costs is better, and other times it's the other way around.
This is a good question because we've seen the federal government shut down and affect different agencies in the past few years. The effects are different for USDA and FHA loans because they are set up differently. During government shutdowns, FHA loans usually keep going because the FHA's mortgage insurance fund doesn't need money from Congress every year. During shutdowns, lenders can usually still underwrite and close FHA loans. However, some verification processes that involve other government agencies, like checking IRS tax returns, may take longer. Shutdowns have a bigger effect on USDA loans because the USDA has to look over and approve each loan as the last step in the underwriting process. If the USDA shuts down and its employees are sent home, new USDA loan applications can't get final approval, which stops closings. Most of the time, loans that were already approved before the shutdown can still close. However, new applications are stuck in limbo until the government reopens and staff can work on the backlog. If you're thinking about getting a USDA loan and there's talk of a government shutdown coming up, you'll want to take that risk into account when making your plans, especially if you have a closing date set in stone. FHA loans are usually less likely to be shut down, but you might have to wait a little longer. This is one area where FHA's structure as a self-funded insurance program gives borrowers more peace of mind and stability.
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