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The Curious Bag
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An FHA, or Federal Housing Administration, loan is a type of government-backed loan designed to help low income buyers secure financing. A USDA, or United States Department of Agriculture, loan is a type of government-backed loan designed to help rural homeowners secure financing.
Significance
Both types of loans are government loans designed to help borrowers achieve the dream of homeownership, even with little to no down payment and lower credit score. However, each is run by a different government agency.
Function
USDA loans are specifically for rural housing and have numerous geographical and loan amount limitations. FHA loans can be in any United States location but have similar loan amount limits as USDA loans.
Types
USDA and FHA loans have 15- and 30-year term options. In addition, both loans can have fixed or variable (ARM) rate options.
Considerations
While USDA does not require a monthly mortgage insurance, or PMI, payment, an upfront fee of 2.75 percent is required. FHA has an upfront fee of 1.75 percent and a monthly PMI (private mortgage insurance) payment of .55 percent as well.
Misconceptions
While USDA and FHA loans are government-backed products, each has its own unique set of rules and regulations. Just because a borrower and a property are approved by one agency, does not mean that they will be approved by another.
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