| Feature | USDA Loan | FHA Loan |
|---|---|---|
| Down payment | 0% | 3.5% (with 580+ credit) |
| Credit score minimum | 640 typical (manual underwriting can go lower) | 580 (500-579 requires 10% down) |
| Geographic eligibility | USDA-eligible rural/suburban areas only | Anywhere in the U.S. |
| Income limit | Up to 115% of area median household income | No income limit |
| Mortgage insurance | 1% upfront + 0.35%/yr (cheaper than FHA) | 1.75% upfront + 0.55%/yr (usually life of loan) |
| Loan limits | Based on borrower repayment capacity, no fixed cap | County-based, $498K-$1.15M |
| Property types | Single-family primary residence only | 1-4 units, primary residence only |
| Cost over 5 years (avg) | Lower (zero down + cheaper MI) | Higher (3.5% + 1.75% UFMIP + 0.55% MIP) |
The complete picture
USDA loans are the most affordable government-backed mortgage when you qualify. Zero down payment, lower mortgage insurance than FHA, and competitive 30-year fixed rates make USDA cheaper than FHA over almost any holding period. The catch is two restrictions: the property must be in a USDA-eligible rural/suburban area, and household income must be within USDA limits (typically 115% of area median).
FHA loans are available to anyone, anywhere in the U.S., with no income limit. FHA's 3.5% minimum down payment and 580 credit floor make it accessible to borrowers who can't qualify for conventional. The tradeoff is higher mortgage insurance — 1.75% upfront + 0.55% annual, lasting the life of the loan for most borrowers.
When both loans are available, USDA almost always wins on cost. Check the USDA eligibility map first — it's surprisingly inclusive. Many suburbs that look fully urban are actually USDA-eligible, including parts of metro Atlanta, Raleigh-Durham, Phoenix, Nashville, and Las Vegas. Even if your first-choice neighborhood doesn't qualify, an adjacent neighborhood often does.
Frequently asked questions
How do I check if my address is USDA-eligible?+
Go to the USDA Income and Property Eligibility Site (eligibility.sc.egov.usda.gov), enter the property address, and it will tell you immediately whether the property and your income qualify. Eligibility is checked at the address level — neighboring properties may have different statuses.
Can I use USDA for a fixer-upper?+
USDA loans require properties to meet basic livability standards (HUD's Minimum Property Requirements). Major fixer-uppers won't qualify under standard USDA. The USDA Section 504 Home Repair program exists for very-low-income homeowners doing repairs, but it's not a purchase product.
What if my income is borderline for USDA?+
USDA income limits include all adult household member income, not just the borrowers'. They allow some deductions (childcare, medical expenses for elderly/disabled). If you're borderline, run the exact calculation with a USDA-experienced lender — small adjustments sometimes make the difference.
Can I switch from FHA to USDA later?+
If your property is in a USDA-eligible area and your income drops to within USDA limits, yes — you can refinance from FHA to USDA. This eliminates FHA's monthly mortgage insurance and replaces it with USDA's lower annual fee. Run the math; the savings can be substantial.