USDA vs FHA Loan Comparison
For low-to-moderate income buyers, USDA and FHA are the two most accessible government-backed programs. USDA wins on down payment (0% vs 3.5%) and total cost in eligible rural/suburban areas. FHA wins on flexibility (works in any location, accepts lower FICO) but costs more long-term due to lifetime MIP.
USDA Rural Development Loan
Zero-down government-guaranteed loan for eligible non-metropolitan areas.
Best for: Low-to-moderate income buyers in eligible rural and suburban areas (most of the country qualifies).
Pros
- +0% down payment
- +Cheaper than FHA: 1% upfront fee + 0.35% annual
- +Annual fee can be removed at refinance
- +Property must be in USDA-eligible area (most of the US)
Cons
- −Property location restrictions (not in metro centers)
- −Income limits (typically 115% of area median income)
- −Property must meet USDA appraisal standards
FHA Loan
Government-insured loan with low down payment and flexible credit.
Best for: Buyers with moderate FICO (580-700) or anyone outside USDA eligible areas.
Pros
- +3.5% down with 580+ FICO
- +Available anywhere (no location restriction)
- +No income limits
- +Flexible credit-event seasoning
Cons
- −MIP for life of loan (if down < 10%)
- −1.75% upfront MIP (financed)
- −County loan limits
| Field | USDA Rural Development Loan | FHA Loan |
|---|---|---|
| Min FICO | 640+ at most lenders (no formal USDA minimum) | 580+ (500+ with 10% down) |
| LTV (purchase) | Up to 100% | Up to 96.5% |
| LTV (cash-out) | N/A (USDA does not allow cash-out) | Up to 80% |
| Income docs | Standard, with income cap | Standard, no cap |
| Term | 30-year fixed | 30-year fixed, 15-year |
| Time to close | 30-45 days | 30-45 days |
Which one should you choose?
- USDA Rural Development Loan: choose USDA if your target home is in an eligible area AND your household income is under the USDA limit. Lower cost and zero down.
- FHA Loan: choose FHA if your home is in a metro area, your income exceeds USDA limits, or you have FICO challenges (USDA tends to be stricter).
- For first-time buyers in eligible suburban areas with moderate income, run both. USDA usually wins on monthly payment due to no PMI/MIP equivalent.
Frequently asked questions
How do I check if a property is USDA-eligible?
Use the USDA Property Eligibility tool at eligibility.sc.egov.usda.gov. Most non-metropolitan areas qualify; check the specific address.
What is the USDA income limit?
Typically 115% of area median income, varies by household size and county. Check the USDA income eligibility tool for your specific scenario.
Can I do a USDA cash-out refinance?
No. USDA does not allow cash-out refinance. You can do USDA-to-USDA streamline refi for rate improvement, but cash-out requires switching to FHA or conventional.
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Today's mortgage rates
Conventional
6.250%
6.288% APR
FHA
5.750%
5.780% APR
VA
5.750%
5.780% APR
Conv: 80% LTV, 780 FICO. FHA: 96.5% LTV, 680 FICO. VA: 100% LTV, 680 FICO. 30-yr fixed. Your rate may vary.