So I often get asked, “why should I purchase a home using the USDA Zero Down loan when I have money for downpayment and can even put 20% down ?”
Truth is, your money is better ‘grown’ in other investments than remaining dormant as equity in your home. You see, historically house prices rise anyway, regardless of whether you create equity at the beginning or not.
So why not take your hard earned money and put it to better use? Like growing it for your kids’ college education or helping your parents through their retirement years?

FHA vs USDA? In terms of Payment comparison, Remember, FHA has lower Upfront Mortgage Insurance (1%) than USDA’s upfront Guarantee Fee (3.5%). But FHA has monthly mortgage insurance where USDA Zero down does not. Be sure to check out our Super Mortgage Calculator which compares these loans with just a few clicks.

16 Responses to “FHA vs. USDA”
  1. daniel says:

    “Why is it called a Guarantee Fee anyway, for USDA Loans?”

    • Suresh.V says:

      with USDA, 90% of the loan amount is ‘guaranteed’ back to the lender if the borrower defaults. Presently the Guarantee Fee is 3.5% of the Loan amount.

  2. paul says:

    I would also like to add that FHA has a bunch of hoops you gotta jump through with regard to buying homes that were recently purchased by the owner/seller. Not so with USDA right???

    • Administrator says:

      correct. FHA used to have a no-go policy if the seller was an Investor flipping the home for profit. However as of 2010 a temporary rule (which presently carries through to 2012) allows ‘flips’ where the Seller has owned the home for less than 90-days from the date of Purchase contract.
      On occasion, the FHA underwriter could call for a 2nd appraisal and a Lender-ordered Home inspection

      USDA loans don’t have restrictions regarding flips :)

  3. Beatrix says:

    Can the Guarantee Fee ever be waived ???

    • Administrator says:

      sorry no!. Not with USDA loans. However with VA loans, the VA Funding fee (2.15% for 1st time users) can be waived if the Veteran has service-related disability,

  4. Lynne says:

    I just closed on my home in Elk Grove with a USDA loan and I have to say it was painless. Except for the part where the USDA came back and asked for additional paperwork about childcare expenses we were paying for. That was kinda nervewracking but all in all, I got no complaints about a USDA loan.

    • Administrator says:

      yes that can happen. Child care expenses are used to drop the Income for Eligibility purposes. ie if a borrower is close to or over the income limit for the USDA program, a dollar-for-dollar deduction for childcare can help keep you below the threshold.

  5. Hermine says:

    I think it’s a no brainer. Who the heck would want to pay mortgage insurance if you didn’t have to? Seriously!

  6. Andrea says:

    Isn’t there some kind or recapture tax or something with the USDA because of the Guarantee Fee they charge you upfront?

    • Administrator says:

      No Andrea. there is not. :) Since Congressional action in 2010, the USDA program is pretty much self-funding with the 3.5% upfront Guarantee Fee

  7. Osmond says:

    We just got an FHA loan and it took 41 days. Was hoping to close sooner than that. You think we could have closed quicker with this other program??

    • Administrator says:

      Its hard to say. With USDA loans, at the latter stages, the file goes to the actual USDA Field Office for final overview and Commitment, even after the Lender’s underwriter has approved the file. This can sometimes add 7 days or so to the process.

  8. Jocelin says:

    Is there much of a difference in what kind of credit scores you must have for FHA versus USDA?

    • Administrator says:

      FHA doesn’t have a credit score requirement. Lenders who fund FHA loans and then get them insured by HUD set their own score requirements. Right now, we are able to fund FHA loans down to a 580 score and USDA loans down to a 620 score

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