FHA Loans vs. USDA Loans: What You Need to Know

There are so many home loan programs out there when you begin to shop for mortgages. Understanding the differences can be daunting and confusing, but understanding a little about your options can be very empowering.

There are two popular home loan programs offered by government agencies: The Federal Housing Agency (FHA) and the United States Department of Agriculture (USDA). Each program has different qualifications and features. Know the differences so that you can get the best deal for your home loan.

USDA Loans

USDA loans are designed to make home buying feasible for families with lower to average income. If you are interested in buying a home in suburban or rural areas, USDA loans may be for you. There are two different types of USDA loans: Direct and Guaranteed.

Direct Loan

Direct loans are strictly for low-income borrowers. If your income level is less than 50% of the average income in your area, direct loans backed by the USDA can help. Here are some of the qualifications from the USDA:

Applicants must fall into the following categories:

• Be without decent, safe and sanitary housing
• Unable to get a loan from other sources
• The home you’re buying must be your primary residence
• Must be legally allowed to secure a loan
• Must be a U.S. citizen or meet the non-citizen qualifications
• Properties financed with direct loan funds must:
• Generally be 2,000 square feet or less
• Not have a market value in excess of the applicable area loan limit
• Not have in-ground swimming pools
• Not be designed for income producing activities

Guaranteed Loan

Guaranteed loans guarantee that the USDA will refund the lender in case of default. Applicants can build or purchase a home in eligible rural areas.

You can view the qualifications on our information page about USDA loans. If you have questions or think you qualify for a USDA loan, let us know and our experts will be happy to help through the home buying process.

FHA Loans

When compared to conventional home loans, FHA loans have less strict requirements. The Federal Housing Association was started in the 1930’s to help Americans get into homes.

FHA loans are an attractive option because they typically have competitive interest rates, lower down payments, lower credit requirements and higher debt-to-income ratio allowances.

To qualify you must be willing to provide your credit history and employment history, as well as other documentation.

Qualifications will be based on:

• Housing Types, State, and County
• Debt to Income Ratios
• Acceptable Source of Down Payment and Closing Costs
• Acceptable Credit History

Which Is the Right Choice?

Your financial situation is one of the biggest determinants when deciding between an FHA or USDA loan. Both loan types are great for first time home buyers, families with lower incomes, and buyers with lower credit scores.

Rely on the Experts

Navigating these choices can be difficult and it helps to have experts on your side. Chris Doering Mortgage has a team with decades of experience and fully understands how daunting it can be to secure a home loan. We will work with you and help you make the right choice. Reach out today to get started!