1. USDA Loans
- The U.S. Department of Agriculture (USDA) offers this type of loan to promote homeownership in rural areas.
- USDA loans often require no down payment.
- Borrowers must meet certain income limits, which vary by region and family size.
- The property must be in an eligible rural area as defined by the USDA.
- USDA loans require a fee (upfront and annual), but these can sometimes be lower than the insurance premiums required by FHA loans.
- Credit requirements can be more flexible, with some lenders approving USDA loans for borrowers with scores as low as 640.
2. FHA Loans
- The Federal Housing Administration (FHA) insures these loans, which are designed to help people who might not qualify for conventional mortgages.
- FHA loans require a down payment, typically 3.5% if your credit score is 580 or higher, or 10% if it’s between 500 and 579.
- There are no income limits for FHA loans.
- FHA loans can be used for any property that meets FHA standards, not just rural properties.
- FHA loans require an upfront mortgage insurance premium (MIP) and also a smaller annual premium.
- FHA loans can be more forgiving of lower credit scores and past financial difficulties, like bankruptcies.
Both USDA and FHA loans can be good options for first-time homebuyers or those who cannot afford a large down payment. They are also helpful for those with less than perfect credit. The best choice between the two depends on your income, where you want to buy a home, your credit score, and how much you have saved for a down payment. It’s a good idea to talk to a mortgage professional to explore all your options.
Getting pre-approved for a USDA home loan or the FHA home loan is fast and easy.