While FHA loans and USDA mortgages are both popular, affordable home financing programs, they each offer different benefits and have very specific eligibility requirements. Let’s take a look at some of these programs key differences.
While most conventional loans require at least 5-20% down, FHA loans typically only require 3.5% down.
USDA loans, by contrast, offer up to 100% financing, which means the borrower doesn’t have to make a down payment at all.
With FHA loans, there are two separate mortgage insurance premiums that the borrower will be responsible for paying: the upfront premium (typically paid at closing), and the yearly premium (which is typically broken up into monthly payments).
The amount of the upfront FHA loan mortgage premium is usually 1.75% of the loan amount. The annual FHA loan mortgage premium can vary in cost depending on the type of loan term and amount of equity. For example, the annual premium may be less on a 15 year loan with a 10% or more down payment than it would be for a 30 year loan with the minimum 3.5% down payment.
USDA loans have a similar mortgage insurance setup. USDA loan borrowers must pay an upfront premium and an annual premium. The upfront premium is usually 2% of the loan for purchases and refinances. The annual premium is usually 0.40% for all USDA loans.
And, like FHA premiums, USDA premiums can be rolled into the borrower’s mortgage payment.
In general, USDA mortgage insurance rates are more affordable than FHA rates and rates for conventional loans. However, USDA loans are a little more challenging to obtain, as they have such specific eligibility requirements.
As with any mortgage program, FHA loans require the borrower to meet certain credit and income guidelines. However, FHA loans are typically easier to qualify for than some conventional mortgages, especially for borrowers who may have lower income or less-than-ideal credit histories.
USDA loans have similar flexibility when it comes to credit and income guidelines; however, with USDA finacning, the property must be located in an area that is designated as “rural” by the U.S. Department of Agriculture.
To find out if a particular property is located in a USDA-eligible zone, use the USDA’s property eligibility map here: http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp
You can also use the above link to research income eligibility guidelines for USDA loans, which vary by state.
Please note that mortgage eligibility rules and guidelines can be fairly complex and may vary by location or by lender. To get the most accurate details on program eligibility in your area, talk to a lender who is licensed to do business in your state. Luxury Mortgage is able to assist mortgage borrowers in many places across the U.S. and we would be more than happy to answer your questions and provide you with a free, no-obligation rate quote. Simply give us a call today to get started or click here to fill out our quote form to be contacted for more information.
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