Ever wondered about FHA loans vs USDA loans: which is best for you? Then I’m glad to inform you that you’re on the right page to review. such an important question for anyone seeking to own a home.
Here we’ll go over what FHA loans and USDA loans are, clarifying their differences as we go along. We wish that by the end of this road you’ll come to a better understanding of what each loan type stands to offer and what loan option best suits your needs and your budget.
Let’s address what FHA loans vs USDA loans are. Fha loans are loans for potential home buyers insured by the federal house administration. We’ll let you know FHA loans vs USDA loans: which is best for you, after our definition of USDA loans next. Usda loans are loans for potential home buyers issued or guaranteed by the United States department of agriculture.
FHA Loans vs USDA Loans Meaning
As you may tell, one obvious difference between both is that FHA loans are insured by the federal government while USDA loans, by the United States department of agriculture. But there are more important differences to both loan types, and these differences are what would help guide your decision on FHA loans vs USDA loans: which is best for you.
Fha loans are good for borrowers with a low credit score, while USDA loans are more affordable loans meant for borrowers who are unable to afford a traditional mortgage. But like we’ve mentioned earlier, these two have more major differences to them. These major differences are the top decisive factors to consider when deciding between FHA loans vs USDA loans: which is best for you.
Differences Between FHA Loans Vs USDA Loans
Here we highlight the top factors to look out for when deciding on which loan program is best for you, and they are.
Credit Scores
When it comes to FHA loans vs USDA loans, your credit score is decisive. That’s because there is a minimum limit for both FHA loans vs USDA loans and they are very much different. Usda loans require a minimum credit loan score of 640. Fha loans on the other hand permit credit scores as low as 500. So if you have a credit score within the range of 500 – 640, then you’re only eligible for FHA loans. For this situation, FHA loans would be the best option to go for.
Down Payments
Fha loans accept down payments within the range of 3.5 – 10 % depending on your credit score. Usda loans require absolutely zero down payment. Depending on your needs, you can decide on the factor of down payments, which best suits your budget. If you prefer a loan with no down payment to one which requires it then USDA loans are the better option in this scenario.
Debt to Income Ratio
Your debt to income ratio is simply your monthly debt payment divided by your monthly income. The debt to income ratio is another substantial factor for determining your eligibility for either FHA loans vs USDA loans. Usda loans accept debt to income ratio of 41%. As for FHA loans, you become eligible for a debt-to-income ratio as high as 50%.
Mortgage Insurance
The mortgage insurance for FHA loans is set at 0.85% for all borrowers. As for USDA loans, no mortgage insurance is required.
Loan Limits
Both of these loans have an amount limit you can borrow. Fha loans have a limit set within the range of $356,362 – $822,325 depending on the county, market areas. The USDA loan limit is within the range of $91,900 – $121,300 depending on the county and member households. The loan limits may also be varied annually by their regulators.
We’ve touched on several decisive factors when it comes to finding the best loan for a home to call yours. While Fha loans are more of the typical type of loans, USDA loans are designed to help out people with lower income, incapable to afford a traditional loan. Both loans provide two different paths to becoming a homeowner, and we hope that through this read you can be better guided in your decision making on the thought of FHA loans vs USDA loans: which is best for you.
