⚡ Quick Answer
USDA loans require $0 down but only work in rural areas with income limits. FHA loans require 3.5% down but work anywhere with flexible credit (580+ score).
✅ Choose USDA if:
- • Buying in rural/suburban area
- • Meet income limits (115% AMI)
- • Want $0 down payment
- • Have 640+ credit score
✅ Choose FHA if:
- • Buying anywhere in US
- • Have 580+ credit score
- • Exceed USDA income limits
- • Can afford 3.5% down
📋 Table of Contents
📊 USDA vs FHA Loan Comparison 2025
| Feature | USDA Loan | FHA Loan |
|---|---|---|
| Down Payment | 0% ($0 down) | 3.5% minimum |
| Credit Score | 640+ (recommended) | 580+ (3.5% down) 500-579 (10% down) |
| Income Limits | YES (varies by area) | NO income limits |
| Location | Rural areas only | Anywhere in US |
| Upfront Fee | 1% (can be financed) | 1.75% (can be financed) |
| Monthly Insurance | 0.35% annually | 0.55%-0.85% annually |
| Loan Limits | No set limit | $498,257 (2025) |
| Best For | Rural buyers, moderate income | Urban/suburban, lower credit |
💰 See Which Loan Saves You More
Get personalized USDA and FHA rate quotes from multiple lenders. Compare side-by-side in 3 minutes.
Compare Rates Now →🌾 What is a USDA Home Loan?
A USDA loan (United States Department of Agriculture) is a zero-down-payment mortgage designed to promote homeownership in rural and suburban areas. Despite the name, you don't need to be a farmer or work in agriculture.
✅ USDA Loan Benefits
- ✓$0 down payment - 100% financing available (save $10,000+ on a $300k home)
- ✓Lower mortgage insurance - 0.35% annual vs 0.55%-0.85% FHA (save $600-$1,500/year)
- ✓Competitive rates - Often lower than conventional loans
- ✓Flexible credit - 640+ score typically accepted
- ✓No loan limits - Based on your income and debt-to-income ratio
⚠️ USDA Loan Restrictions
- ✗Rural areas only - Property must be in USDA-eligible zone (97% of US land, but only 35% of population)
- ✗Income limits apply - Typically 115% of area median income (varies by location)
- ✗Primary residence only - No investment properties or vacation homes
- ✗Longer processing - USDA approval can take 2-4 weeks longer than FHA
💡 Pro Tip: Check if your desired property is in a USDA-eligible area using the USDA eligibility map. Many suburban areas qualify!
🏠 What is an FHA Home Loan?
An FHA loan (Federal Housing Administration) is a government-backed mortgage with low down payment requirements and flexible credit standards, available anywhere in the United States.
✅ FHA Loan Benefits
- ✓Low down payment - Just 3.5% with 580+ credit score
- ✓Flexible credit - 580+ score (500-579 with 10% down)
- ✓No income limits - Qualify based on debt-to-income ratio only
- ✓Available anywhere - Urban, suburban, or rural locations
- ✓Faster processing - Typically closes 2-3 weeks faster than USDA
- ✓Gift funds allowed - Down payment can come from family gifts
🎯 Get Pre-Approved for USDA or FHA
See which loan you qualify for and get pre-approved in 24 hours. No impact to credit score.
Get Pre-Approved Now →💵 Down Payment Requirements: USDA vs FHA
🌾 USDA: $0 Down
USDA loans offer 100% financing with no down payment required.
Example: $300,000 home
$0
Down payment needed
✅ Advantage: Buy a home with zero cash upfront (closing costs still apply, typically 2-5%)
🏠 FHA: 3.5% Down
FHA loans require a minimum 3.5% down payment with 580+ credit score.
Example: $300,000 home
$10,500
Down payment needed (3.5%)
⚠️ Note: 500-579 credit score requires 10% down ($30,000 on $300k home)
💡 Down Payment Winner: USDA
USDA's $0 down payment saves you $10,500+ upfront on a $300k home. This is huge for first-time buyers with limited savings. However, you must qualify for a USDA-eligible area.
📊 Credit Score Requirements: USDA vs FHA
| Credit Score | USDA Loan | FHA Loan |
|---|---|---|
| 640+ | ✓ Approved (standard) | ✓ Approved (3.5% down) |
| 620-639 | Manual underwriting | ✓ Approved (3.5% down) |
| 580-619 | ✗ Not eligible | ✓ Approved (3.5% down) |
| 500-579 | ✗ Not eligible | 10% down required |
| Below 500 | ✗ Not eligible | ✗ Not eligible |
💡 Credit Winner: FHA
FHA accepts credit scores as low as 580 (or 500 with 10% down), making it more accessible for buyers with past credit issues. USDA typically requires 640+ for automated approval. If your credit is below 640, FHA is your best option.
💰 Income Limits & Eligibility: USDA vs FHA
🌾 USDA: Income Limits Apply
Your household income must be ≤115% of area median income (AMI).
Example: Family of 4 in most areas
$103,500
Maximum household income
⚠️ Restriction: Limits vary by county. High-cost areas may have higher limits ($125k+).
🏠 FHA: No Income Limits
FHA has NO income limits. Qualify based on debt-to-income ratio only.
Maximum DTI ratio
57%
With compensating factors
✅ Advantage: High earners can qualify. No income ceiling.
💡 Income Winner: Depends on Your Situation
Choose USDA if: Your income is below area limits (most families under $100k qualify). Choose FHA if: You exceed USDA income limits or want no income restrictions. Check your area's USDA income limits.
📍 Location Requirements: USDA vs FHA
🌾 USDA: Rural Areas Only
Property must be in a USDA-eligible rural or suburban area.
US Land Eligible
97%
But only 35% of population
⚠️ Restriction: Major cities (NYC, LA, Chicago cores) don't qualify. Many suburbs do!
🏠 FHA: Anywhere in US
FHA loans work in all 50 states, urban, suburban, or rural.
Location Flexibility
100%
Any location qualifies
✅ Advantage: No location restrictions. Buy anywhere.
💡 Location Winner: FHA (Flexibility)
FHA wins for location flexibility. However, if you're buying in a USDA-eligible area, USDA's $0 down payment is unbeatable. Use the USDA eligibility map to check your address.
🛡️ Mortgage Insurance Costs: USDA vs FHA
| Fee Type | USDA Loan | FHA Loan |
|---|---|---|
| Upfront Fee | 1% (can finance) | 1.75% (can finance) |
| Annual Premium | 0.35% | 0.55%-0.85% |
| Monthly Cost ($300k loan) | $88/month | $138-$213/month |
| Can Be Removed? | Yes (at 80% LTV) | No (lifetime MIP) |
| Annual Savings (USDA) | — | -$600 to -$1,500 |
💡 Insurance Winner: USDA
USDA's 0.35% annual fee is significantly lower than FHA's 0.55%-0.85%. On a $300k loan, you save $600-$1,500/year with USDA. Plus, USDA insurance can be removed at 80% LTV, while FHA MIP is for life (if less than 10% down). Calculate your savings.
🏆 Which Loan is Better? USDA vs FHA
Decision Framework
✅ Choose USDA If:
- 1.Property is in USDA-eligible area (check map)
- 2.Income is ≤115% AMI for your area
- 3.Credit score is 640+
- 4.Want $0 down payment
- 5.Want lower mortgage insurance
✅ Choose FHA If:
- 1.Buying in urban/city area (not USDA-eligible)
- 2.Income exceeds USDA limits
- 3.Credit score is 580-639
- 4.Can afford 3.5% down
- 5.Need faster closing (30-45 days vs 45-60)
💡 Pro Tip: Apply for Both!
If you're in a USDA-eligible area and meet both programs' requirements, get pre-approved for both and compare final offers. USDA typically wins on cost, but FHA offers more flexibility and faster processing.
💼 Real-World Examples: USDA vs FHA
✅ USDA Winner: Sarah's Story
Profile: First-time buyer, 660 credit, $65k income
Location: Suburban Colorado (USDA-eligible)
Home Price: $280,000
USDA Loan:
- • Down payment: $0
- • Monthly payment: $1,847
- • Total saved: $9,800 (no down payment)
✓ Sarah qualified for USDA and saved her entire down payment!
✅ FHA Winner: Mike's Story
Profile: 595 credit, $85k income, past bankruptcy
Location: Urban Denver (not USDA-eligible)
Home Price: $350,000
FHA Loan:
- • Down payment: $12,250 (3.5%)
- • Monthly payment: $2,456
- • Approved despite 595 credit
✓ Mike got approved with FHA when USDA wasn't available!
🎯 Find Your Best Loan Option
Get personalized recommendations from expert loan officers. See if you qualify for USDA or FHA in 3 minutes.
Get My Recommendation →❓ Frequently Asked Questions
Can I qualify for both USDA and FHA loans?
Yes! If you're buying in a USDA-eligible area and meet both programs' requirements, you can apply for both and compare offers. USDA typically offers better terms (no down payment, lower insurance) but takes longer to process. Many buyers get pre-approved for both and choose based on their timeline and savings.
What are the income limits for USDA loans in 2025?
USDA income limits vary by location and household size. Generally, your household income must be at or below 115% of the area median income (AMI). For example, in most areas, a family of 4 can earn up to $103,500. Check your specific area's limits using the USDA income eligibility tool.
Can I remove mortgage insurance from USDA or FHA loans?
USDA: Mortgage insurance can be removed once you reach 80% LTV through payments or appreciation. FHA: If you put down less than 10%, MIP is for the life of the loan. With 10%+ down, MIP drops after 11 years. To eliminate MIP entirely, you'll need to refinance to a conventional loan once you have 20% equity.
Which loan is better for first-time homebuyers?
Both are excellent for first-time buyers! Choose USDA if you're buying in a rural/suburban area and meet income limits (save $10,000+ with $0 down). Choose FHA if you're buying in an urban area, have lower credit (580+), or exceed USDA income limits. Many first-time buyers compare both options to find the best fit.
How long does it take to close a USDA vs FHA loan?
FHA loans typically close in 30-45 days. USDA loans take 45-60 days due to additional USDA approval requirements. If you're in a competitive market or need to close quickly, FHA may be better. However, many sellers accept USDA offers if you're pre-approved and have a solid timeline. Get pre-approved early to speed up the process.
Can I use gift funds for down payment with USDA or FHA?
FHA: Yes! You can use 100% gift funds from family for your 3.5% down payment. USDA: No down payment required, but you can use gift funds for closing costs (typically 2-5% of purchase price). Both programs require gift letters documenting the funds. Learn more about gift fund requirements.
🏡 Ready to Get Started?
Compare USDA and FHA rates from 50+ lenders. Get pre-approved in 24 hours.
✓ No impact to credit score • ✓ Takes 3 minutes • ✓ 50+ lenders compete for your business
