For certain borrowers, USDA loans and FHA loans are the best option for achieving their goal of becoming a homeowner. Both of these options have pros and cons to them, so you’ll want to fully understand the difference between the two in order to determine which option is the best for your situation. So, what is the difference between an FHA loan and a USDA loan? Let’s find out!
FHA Loan
FHA loans are supported by the Federal Housing Administration, an ability that they receive as a result of the mortgage insurance. With an FHA loan, 96.5 percent of the home’s purchase price is covered by the mortgage and the rest with a down payment. The amount of mortgage insurance you will pay is far less than with traditional loans.
USDA Loan
A USDA loan is also called a USDA Rural Development Loan. This type of loan doesn’t require a downpayment and is from the United States Department of Agriculture. Ninety seven percent of landscape in the United States is geographically eligible for a USDA loan. There are two options for this loan: the Rural Housing Direct Loan and Rural Housing Guaranteed Loan.
A USDA Loan is for buyers who have been able to obtain financing any other way in rural areas and there are income limits in order to be eligible for a USDA loan. Not everyone will be able to qualify for a USDA loan, which is why the FHA loan a great option as well. If you make 115 of the median income for the area you live in, you won’t qualify. Terms for these loans can range from 30 to 38 years and offer 100 percent financing but you will still need mortgage insurance.
USDA vs. FHA Loans
When comparing the two types of loans, remember that an FHA loan does not have a requirement for where the home is located. USDA loans, meanwhile, apply to homes in rural locations. Mortgage insurance rates are higher for FHA loans than for USDA loans. Requirements to obtain and FHA loan are much less strict than those for a USDA loan. There is also a down payment of at least 3.5% required to apply for an FHA loan and FHA loans are guaranteed. One of the benefits of an FHA loan is that there is no income cap, but with a USDA loan there is a maximum for income.
Depending on your financial situation, you may be limited as to which type of loan you qualify for. For example, if you are choosing an urban location to call home, you won’t qualify for a USDA loan. A USDA loan will make owning a home more affordable in the long run, but the right option is really unique to each individual’s situation.
If you have any questions about your loan options, contact www.Rayloveshomes.com today and I can help guide you through the process of deciding which one may work best for you.