Side by side
| USDA | FHA | |
|---|---|---|
| Down payment | None required | 3.5% with 580 score, 10% with 500 to 579 |
| Upfront fee | 1% | 1.75% |
| Annual fee | 0.35% | 0.55% for most |
| Location | Eligible areas only | Anywhere |
| Income limit | Yes, household based | No |
| Credit | About 640 automated, lower manually with select lenders | 580 for 3.5% down |
| After Chapter 7 | Generally 3 years | Generally 2 years |
| Two to four units | Not allowed | Allowed, live in one |
| Loan limit | None | County limits |
Why USDA is the narrower box
FHA lets you qualify with lower credit and more debt, with no income ceiling. USDA caps household income, holds most files to tighter debt ratios and generally expects better credit. So the same buyer can sail through FHA and miss USDA, usually because of debt to income. USDA costs less if you fit. FHA fits more people.
When USDA wins
If the home is in an eligible area and your household income fits, USDA usually costs less: no down payment, lower fees upfront and every month. For a qualifying buyer, it's hard to beat.
When FHA wins
Your household income is over USDA's limit. The home you want isn't in an eligible area. You want a duplex to fourplex. A recent bankruptcy or foreclosure fits FHA's shorter wait but not USDA's. Or your score is below what USDA lenders will accept.
Don't forget VA and conventional
Veterans should compare VA first: no down payment, no monthly mortgage insurance, no income limit and no location rules. Borrowers with strong credit and some savings should compare conventional, whose mortgage insurance can be removed.
Same buyer, two options
Jenna qualified for both FHA and USDA on a home in an eligible area west of Orlando.
With USDA, she avoided the 3.5% down payment and paid a lower upfront and annual fee. Her monthly payment came in lower, and she kept her savings as reserves.
Frequently asked questions
Is USDA better than FHA?
If you qualify for USDA by location and income, it usually costs less.
Which is easier to qualify for?
FHA. It has no income limit, allows more debt and accepts lower scores. USDA is a narrower box: moderate income, low debt and solid credit.
Can I use FHA if I'm over the USDA income limit?
Yes. FHA has no income limit.
Can I use USDA for a duplex?
No. FHA allows two to four units if you live in one.