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USDA rural home loans

USDA vs FHA: comparing two low-down-payment loans

USDA and FHA loans both help buyers who have little saved. USDA can mean no down payment, but only in eligible areas and under income limits. FHA works almost anywhere with no income cap, but needs at least 3.5 percent down and carries higher mortgage insurance. Here is how to compare them on the same house.

Reviewed November 2026 · Written for Buy Home Tips from the sources listed below

If you have a modest income and little saved, USDA and FHA loans are often the two options lenders mention first. Both are government-backed, both accept lower down payments than most conventional loans, and both charge an upfront fee plus an ongoing charge. The differences lie in who and where they serve and how much those charges are.

Who can use each loan

USDA's Section 502 guaranteed loan is for homes in eligible rural areas, which often include small towns and some outer suburbs. USDA Rural Development says household income may not exceed 115 percent of the median household income for the area, and the home must be your primary residence. You can check both the address and your income on USDA's eligibility site.

FHA has no location test beyond its county loan limits and no income limit. HUD's handbook requires a minimum investment of 3.5 percent for borrowers with a minimum decision credit score of 580 or higher, and caps loans for scores from 500 to 579 at 90 percent loan-to-value.

Down payment

USDA Rural Development describes the guaranteed program as offering 100 percent financing to eligible buyers. FHA needs at least 3.5 percent down. Either can be combined with gifts or assistance under each program's rules, and both still need cash for closing costs unless the seller or another source covers them.

Upfront and annual charges

For fiscal year 2027, USDA's notice sets an upfront guarantee fee of 1.00 percent of the loan and an annual fee of 0.35 percent, collected monthly. FHA charges upfront mortgage insurance of 1.75 percent of the base loan and, under HUD Mortgagee Letter 2023-05, an annual premium of 0.55 percent for most 30-year loans up to $726,200 with more than 95 percent loan-to-value.

Both upfront charges are usually financed into the loan. Federal rules at 7 CFR 3555.107 allow USDA's annual fee for the life of the loan, and HUD's premium table keeps FHA's annual premium for the full mortgage term when you start with more than 90 percent loan-to-value.

Other differences to weigh

  • Speed. USDA guaranteed loans need USDA to issue a guarantee, which can add a step to the timeline. Ask your lender how long its USDA files usually take.
  • Property. Both programs have their own property and appraisal standards; neither replaces a home inspection.
  • Who can be counted. USDA looks at total household income for eligibility, even of members not on the loan. FHA looks only at borrowers.
  • Terms and credit. USDA says its guaranteed loans are 30-year fixed-rate only and that the program has no credit score requirement, though applicants must show they can manage debt and lenders add their own standards. FHA offers other terms and adjustable rates, and is capped by county loan limits.
  • Closing costs. USDA says closing costs and reasonable expenses tied to the purchase may be included in the transaction, which can lower your cash to close if the home appraises high enough.

When each tends to fit

USDA usually wins on cost when the home is in an eligible area and your household income is under the limit. FHA fits when the home is outside USDA areas, your household income is too high for USDA, or you want a lender that can close fast without an agency guarantee step. Compare Loan Estimates for both if you qualify.

The bottom line

USDA offers no down payment and lower ongoing fees, but only in eligible areas and under income limits. FHA works nearly anywhere for most incomes with 3.5 percent down. Price the same house both ways before choosing.

Mini calculator: USDA and FHA side by side

Enter a price. The result compares a USDA guaranteed loan with no down payment and an FHA loan with 3.5% down, using the fee rates described in this guide.

Enter your figures to see the result. Nothing you type leaves this page.

USDA fees are for fiscal year 2027 (1.00% upfront, 0.35% a year). FHA uses 1.75% upfront and 0.55% a year for a base loan up to $726,200 with over 95% loan-to-value. Annual amounts are first-year approximations.

Choosing between USDA and FHA

  • Check the address on USDA's property eligibility map.
  • Check your household income against USDA's limit for the county.
  • Compare Loan Estimates for both loans from the same lender if possible.
  • Compare total cash to close, not just the down payment.
  • Compare monthly payments including mortgage insurance or the annual fee.
  • Ask how long each annual charge lasts.

Questions buyers ask

Is USDA cheaper than FHA?

Often it is on monthly cost, because USDA's fiscal year 2027 annual fee is 0.35 percent while FHA's annual premium is 0.55 percent for most loans. But USDA only works for eligible rural areas and incomes, and rates and lender fees also matter.

Do USDA loans require a down payment?

USDA Rural Development says its guaranteed program offers eligible buyers 100 percent financing, meaning no down payment is required. FHA requires at least 3.5 percent for borrowers with a 580 or higher score.

Are there income limits for FHA loans?

No. FHA does not set income limits. USDA guaranteed loans are limited to households earning no more than 115 percent of the area median income.

Can I use either loan for a second home?

No. Both programs are for a home you will live in as your primary residence.

Sources checked for this page

Checked November 2026. Programs and limits change; confirm with the source before you rely on a figure.

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