This home buyer guide to FHA vs USDA mortgages compares two popular low-down-payment mortgage loans. Use the comparison to help decide which mortgage is best for your upcoming purchase of a home.
The Differences Between FHA and USDA Mortgages
The FHA and USDA mortgage programs are similar in some ways. They are government-backed mortgages for primary residences only, and each has an official name that’s rarely used – the FHA 203(b) and the Section 502. Furthermore, both loans were created make homes more affordable for Americans who want to buy them.
The similarities between FHA and USDA mortgages end there.
Highlights: FHA Mortgage
The FHA mortgage program is a versatile and inclusive home loan for U.S. home buyers. FHA mortgages can be used for 1-unit and multi-unit properties; for homes in need of renovation and repair; and by buyers with low credit scores.
Key FHA loan features include:
- Minimum 3.5 percent down payment requirement
- Available to first-time and repeat home buyers
- No income limitations or thresholds
- 580 credit score minimum with flexibility to a 500 credit score
- Available for 1-4 unit homes, including condos and townhomes
Mortgage underwriting is more lenient for FHA loans than USDA mortgages, especially for home buyers with a history of bankruptcy or foreclosure.
Highlights: USDA Mortgage
The USDA mortgage program is an optional no-down payment mortgage for home buyers in suburban and rural parts of the country. USDA mortgages come with low mortgage rates and mortgage insurance costs, and are generally more affordable than other loan types.
Key USDA loan features include:
- No down payment required
- Available to first-time and repeat home buyers
- Income limitations based on county
- Minimum credit score requirement of 620
- Available for 1-unit properties only including manufactured and modular homes
USDA mortgage guidelines allow home buyers to add mortgage and real estate closing costs to their principal balance to borrow over 100% loan-to-value.
Mortgages At-A-Glance
| Loan Feature | FHA | USDA Loan |
| Minimum Loan Size Allowed | None | None |
| Maximum Loan Size Allowed | See Loan Limits | None |
| Maximum Household Income Allowed | No Restrictions | 115% of AMI |
| Minimum Credit Score Required | 500 | None |
| Debt-to-Income Maximum - Standard | 43.00% | 41.00% |
| Debt-to-Income Maximum with Compensating Factors | 50.00% | 44.00% |
| Minimum Downpayment Required | 3.50% | None |
| Maximum Loan-To-Value Allowed | 96.50% | 1 |
| Maximum Combined Loan-to-Value Allowed | 1.25 | 1 |
| First-Time Homebuyer Education Required | No | No |
| Minimum Age Allowed | Minimum Legal Age | Minimum Legal Age |
| Maximum Age Allowed | None | None |
| First-Time Home Buyers Allowed | Yes | Yes |
| First-Time Home Buyers Only | No | No |
| Low-Down Payment Mortgage Classification | Yes | Yes |
| Income Verification Required | Yes | Yes |
| Military Service Required | No | No |
| States Allowed | All States | All States |
| Homeowners Insurance Required | Yes | Yes |
| Escrow Taxes & Insurance Required | Yes | Yes |
Compare Mortgage Statistics
| Loan Feature | FHA | USDA Loan |
| Average Interest Rate: Last Year | 4.99% | 4.72% |
| Average Loan Size: Last Year | $279,773 | 182,777.09 |
| Average Approval Rate: Last Year | 75.02% | 78.70% |
| Market Share: Last Year | 17.97% | 1.71% |
| Purchase Mortgages Originated: Last Year | 887,234 | 84,322 |
Compare Mortgage Products
| Loan Feature | FHA | USDA Loan |
| 1-Year ARM Available | Yes | No |
| 5-Year ARM Available | Yes | No |
| 10-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 15-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 20-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 25-Year Fixed-Rate Mortgage Available | Yes | Yes |
| 30-Year Fixed-Rate Mortgage Available | Yes | Yes |
| Temporary Buydowns Available | Restricted | Yes |
Compare Mortgage Insurance
| Loan Feature | FHA | USDA Loan |
| Funding Fee / Guarantee Fee | No | Yes |
| Upfront Mortgage Insurance Premium | Yes | Yes |
| Annual Mortgage Insurance Premium | Yes | Yes |
| Private Mortgage Insurance | No | No |
Compare Occupancy Rules
| Loan Feature | FHA | USDA Loan |
| Primary Residence | Yes | Yes |
| Second Home | Restricted | No |
| Vacation Home | No | No |
| Investment Property | No | No |
| Non-Occupant Co-Borrower | Yes | No |
Compare Citizenship Rules
| Loan Feature | FHA | USDA Loan |
| U.S. Citizen Allowed | Yes | Yes |
| Permanent Resident Alien Allowed | Yes | Yes |
| Non-Permanent Resident Alien Allowed | Yes | Yes |
| Foreign National Allowed | Yes | No |
| Buyers With Diplomatic Immunity Allowed | Yes | No |
Compare Credit Rules
| Loan Feature | FHA | USDA Loan |
| Credit Scoring Model | Tri-merge | Tri-merge |
| Non-Traditional Credit References Allowed | Yes | Yes |
| Deferred Student Loans | Actual Payment or 0.5% of Loan Balance | 5% of balance or payment on credit report if not zero |
| Deferred Debt Calculation | Lesser of 5% of balance or monthly payment | Lesser of 5% of balance or monthly payment |
| Pay Off Medical Collections Prior To Closing | Not Required | No |
| Pay Off Non-Medical Collections Prior To Closing | Required when collections exceed $2,000 | No |
| Bankruptcy, Chapter 7 | 2-Year Waiting Period | 3-year waiting period |
| Bankruptcy, Chapter 13 | 1-Year From Filing | 12-month waiting period |
| Short Sale | 3-Year Waiting Period | 3-year waiting period |
| Foreclosure | 3-Year Waiting Period | 3-year waiting period |
| Judgments & Liens Allowed | Must be satified | Yes |
| Federal Income Tax Delinquency Allowed | No | No |
Compare Property Rules
| Loan Feature | FHA | USDA Loan |
| Minimum Square Footage Allowed | No minimum | 400 Sq. Ft. |
| Maximum Square Footage Allowed | No maximum | 2,000 Sq. Ft. |
| Single-Family Residences Allowed | Yes | Yes |
| Condominiums Allowed | Yes | Yes |
| Non-Warrantable Condominiums Allowed | No | No |
| Co-ops Allowed | Yes | No |
| Townhomes Allowed | Yes | Yes |
| 2-4 Unit Homes Allowed | Yes | No |
| Manufactured Homes Allowed | Yes | Yes |
| Fraternity and Sorority Houses Allowed | No | No |
| Tiny Homes Allowed | Yes | No |
| Modular Homes Allowed | Yes | Yes |
| Cob Homes Allowed | No | No |
| Shipping Container Homes Allowed | Yes | No |
| Condotels Allowed | No | No |
| Bed & Breakfast Allowed | No | No |
| Working Farms Allowed | No | No |
| Working Ranches Allowed | No | No |
| Houseboats Allowed | No | No |
| Log Homes Allowed | Yes | Yes |
| Geodesic Homes Allowed | No | No |
| Timeshares Allowed | No | No |
| Homes with Solar Panels Allowed | Restricted | Yes |
| 3-D Printed Homes Allowed | No | Yes |
| Leasehold Estates Allowed | Yes | Yes |
| Mixed-Use Properties Allowed | Yes | No |
| Flood Zones Allowed | Only where insurable | Yes |
| Properties With More Than 20 Acres Allowed | Yes | No |
| Properties with PACE Allowed | No | Yes |
Compare Ownership Rules
| Loan Feature | FHA | USDA Loan |
| Inter Vivos Revocable Trust Allowed | Yes | No |
| Closing in a Corporation Allowed | Yes | No |
| Community Land Trust Allowed | Yes | Yes |
| Non-Profit Organizations Allowed | Yes | No |
| Municipal Government Agencies Allowed | Yes | No |
Compare Income Rules
| Loan Feature | FHA | USDA Loan |
| W-2 Income Allowed | Yes | Yes |
| Self-Employment Income Allowed | Yes | Yes |
| Investment Income Allowed | Yes | Yes |
| Retirement Income Allowed | Yes | Yes |
| Trust Income Allowed | Yes | Yes |
| Social Security Income Allowed | Yes | Yes |
| Military Income Allowed | Yes | Yes |
| Rental Income Allowed | Restricted | Yes |
| Asset Depletion as Income Allowed | No | Yes |
| Offer Letter Income Allowed | No | Yes |
| Disability Income Allowed | Yes | Yes |
| Alimony and Child Support Income Allowed | Yes | Yes |
| Boarder Income Allowed | Restricted | No |
| Accessory Dwelling Unit Income Allowed | Yes | Yes |
| Cannabis Industry Income Allowed | No | No |
| Automobile Allowance as Income Allowed | Yes | Yes |
| Housing Allowance as Income Allowed | Yes | Yes |
| Temporary Leave Income Allowed | Restricted | Yes |
| Bank Statements as Income Allowed | No | No |
| Debts Paid By Others as Income Allowed | No | No |
Compare Assets & Downpayment Rules
| Loan Feature | FHA | USDA Loan |
| Seasoning Requirements | 30 Days | 60 days |
| Reserves Required | No | No |
| Cash Gift For Downpayment Allowed | Yes | Yes |
| Seller Concessions, Maximum | 6.00% | 6.00% |
| Salary Advance for Downpayment Allowed | No | No |
| Relocation Funds for Downpayment Allowed | Restricted | Yes |
| Gift of Equity Allowed | Yes | Yes |
| Sweat Equity Allowed | Yes | No |
| Crypto for Downpayment Allowed | Restricted | No |
| Cash Value For Credit Card Rewards Allowed | No | No |
| Cash Value For Airline Rewards Allowed | No | No |
Compare Loan Traits
| Loan Feature | FHA | USDA Loan |
| Assumable Mortgage Allowed | Yes | Yes |
| Trailing Co-Borrower Allowed | Yes | Yes |
| Maximum Properties Financed Allowed | 1 | 0.00% |
| Flipped Homes Allowed | Restricted | No |
| Arms-Length Transaction Required | No | No |
| Occupancy Deadline | 60 days | 60 days |
| Delayed Financing Allowed | No | No |
| Prepayment Penalty Allowed | No | No |
| Termite Inspection Required | Yes | No |
| Power of Attorney Allowed | Yes | Yes |
| Repair Allowances Allowed | No | No |
| Gifts From Charitable Organizations Allowed | No | Yes |
Sources: FHA, U.S. Department of Agriculture
Important Notice For Home Buyers
This mortgage comparison between the FHA and USDA mortgages is based on current mortgage guidelines published by the FHA and the U.S. Department of Agriculture and is subject to change when mortgage guidelines change.
Mortgage lenders may apply lender overlays to the official mortgage guidelines, affecting mortgage underwriting and your ability to get approved.
If one lender turns down your FHA or USDA mortgage application, it does not mean that all mortgage lenders will turn down your application. Getting approved with another lender may be possible.
Consult with multiple lenders about your mortgage rates and choices.
Find Out More: FHA vs USDA Mortgages
Want to make an informed decision? Visit our comprehensive FHA mortgage and USDA mortgage guide pages. And when you’re ready to move forward, get your immediate mortgage approval at Homebuyer.com.
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