Both programs exist for the same reason — helping buyers who can’t clear conventional standards. But they solve different problems, and the choice usually isn’t close once you know two things: where the home is, and what you earn.

USDA offers something FHA can’t: zero down payment. FHA offers something USDA can’t: availability almost anywhere, at almost any income.

Here’s how to tell which one applies to you.

Check USDA first. If your property and income qualify, it’s usually the cheaper loan — no down payment, lower mortgage insurance, and competitive rates. If you don’t qualify, FHA is the fallback, and it works nearly everywhere with no income limit at all.

FHA vs USDA Side-by-Side Comparison

Feature FHA Loan USDA Loan
Down payment 3.5% with 580+ credit
10% with 500–579		 0%
Credit score 500 program floor
580 for 3.5% down		 No program minimum
640 common for automated approval
Income limit None 115% of area median income
Location limit None USDA-eligible rural and suburban areas only
Upfront fee 1.75% mortgage insurance premium 1.00% guarantee fee
Annual fee 0.55% for most borrowers 0.35%
Does the fee ever stop? No, if under 10% down
Yes at 11 years with 10%+ down		 No — runs the life of the loan
Is the fee calculated on… The declining balance The declining balance
Property types 1–4 units, condos, manufactured Single-family only, no income-producing property
Occupancy Primary residence Primary residence
Loan limits $541,287 baseline
$1,249,125 high-cost		 No set limit — capped by what your income supports
Gift funds 100% of down payment allowed N/A — no down payment required
Seller concessions Up to 6% Up to 6%

The Two Rules That Decide It

Rule 1: Where is the property?

USDA only finances homes in eligible areas. Most people assume that means farmland. It doesn’t.

The Guaranteed Loan program covers towns up to 35,000 in population, which includes a surprising number of suburbs and small cities. Outer-ring suburbs of major metros frequently qualify.

Check the map before you assume. USDA publishes an address-level eligibility tool. An address either qualifies or it doesn’t — there’s no judgment involved.

Rule 2: What does your household earn?

USDA caps household income at 115% of area median income. And here’s the part that disqualifies more applicants than the property rules do:

USDA counts income from every household member aged 18 and older — not just the borrowers. An adult child living at home, a parent, or a roommate all count toward the limit, even if their name isn’t on the loan.

FHA has no income limit whatsoever. You can earn $50,000 or $500,000 and the program treats you identically. What FHA limits is the loan amount, not your paycheck. See our guide to FHA loan income limits and requirements.

Highlights of a USDA Loan

Zero down payment. This is the headline, and it’s genuine — USDA and VA are the only two programs offering 100% financing. On a $300,000 home, that’s $10,500 you don’t need for FHA’s 3.5%.

Lower mortgage insurance. USDA’s annual fee is 0.35% against FHA’s 0.55%. On a $300,000 loan, that’s about $50 less per month — roughly $18,000 over thirty years.

A smaller upfront fee. USDA charges 1.00% upfront; FHA charges 1.75%. On $300,000, that’s a $2,250 difference financed into the loan.

No loan limit. USDA doesn’t cap the loan amount. Your income and the 115% AMI limit do that naturally, but there’s no county ceiling to run into.

The fee shrinks as you pay down. USDA’s annual fee is calculated on your declining balance, so the dollar amount falls every year.

Risks and Drawbacks of a USDA Loan

You can earn too much. This is the one nobody expects. A raise or a working adult child can push you over the limit between pre-approval and closing.

The property has to qualify, not just you. A perfect borrower can’t buy a home outside an eligible area. Period.

The fee never cancels. Like FHA with low down payment, USDA’s annual fee runs the life of the loan. Refinancing into conventional is the only exit.

Zero down means zero equity. If values soften, you’re underwater immediately. Selling in the first few years may cost you money out of pocket.

No 2–4 unit properties. USDA is single-family only. You can’t house hack with it.

Processing can be slower. USDA loans require a second review by Rural Development after the lender approves. That adds time, sometimes significantly. See our guide to USDA home loan requirements.

Highlights of an FHA Loan

It works almost anywhere. No geographic restriction. City, suburb, or rural — FHA doesn’t care.

No income limit. High earners qualify the same as anyone else.

The lowest credit floor in government lending. FHA permits 500 with 10% down and 580 with 3.5%. Most lenders overlay at 620, but the program itself goes lower — and some lenders honor it.

Mortgage insurance isn’t priced by credit score. The annual premium is 0.55% at 580 or 780. Conventional PMI penalizes lower scores heavily; FHA doesn’t. That’s why FHA often beats conventional monthly for borrowers under 700.

You can buy 2–4 units. Live in one, rent the others, and count 75% of the market rent from the remaining units toward qualifying. That’s one of the few low-down-payment paths into multifamily.

Shorter waiting periods after credit events. Two years from a Chapter 7 discharge, one year of on-time Chapter 13 plan payments, three years from a foreclosure — with exceptions that can shorten each.

The entire down payment can be a gift. FHA permits 100% gift funds from family, employers, or approved sources.

Risks and Drawbacks of an FHA Loan

You need money down. 3.5% on a $300,000 home is $10,500 — real money for a first-time buyer.

Mortgage insurance usually never ends. With less than 10% down on a loan originated after June 3, 2013, annual MIP runs the life of the loan. No amount of principal payment cancels it. Borrowers routinely make extra payments expecting an equity threshold that doesn’t exist. See our guide to removing FHA mortgage insurance.

Higher fees than USDA. 1.75% upfront and 0.55% annually, against USDA’s 1.00% and 0.35%.

Loan limits apply. $541,287 in most counties caps what you can buy in expensive markets.

Appraisals are stricter. FHA appraisers check safety and habitability — peeling paint, missing handrails, roof condition. Deals die over repairs sellers won’t make.

Which Loan Should You Choose?

Your situation Better fit
Property is in a USDA-eligible area and income is under the limit USDA
You have no money for a down payment USDA if eligible
Property is in a city or large suburb FHA
Household income exceeds 115% of AMI FHA
Credit score below 620 FHA
Buying a duplex, triplex or fourplex FHA
Recent bankruptcy or foreclosure FHA
You have 3.5% down and want the cheapest monthly payment Run both — USDA usually wins if eligible

The practical order: check USDA eligibility first, because it’s a yes-or-no answer that takes two minutes. If you clear both the map and the income limit, USDA almost always costs less. If you fail either, FHA is your program.

If you’re eligible for VA financing, check that first — it beats both. See our comparison of zero down payment home loans.

Frequently Asked Questions

Is a USDA loan better than an FHA loan?

For borrowers who qualify, usually yes. USDA requires no down payment, charges a lower upfront fee (1.00% vs. 1.75%), and carries lower annual mortgage insurance (0.35% vs. 0.55%). The catch is eligibility — your property must be in a USDA-designated area and your household income must fall under 115% of area median.

Can I get a USDA loan with bad credit?

USDA sets no program minimum credit score, but most lenders want 640 for automated approval. Below that, manual underwriting is possible with compensating factors but harder to find. FHA reaches lower — 580 for 3.5% down and 500 with 10% down — which makes it the more realistic option for damaged credit.

What disqualifies you from a USDA loan?

Three things, most commonly. Property location outside an eligible area. Household income above 115% of area median — counting everyone 18 and older, not just borrowers. And property type, since USDA won’t finance 2–4 units, income-producing property, or most manufactured homes on leased land.

Does FHA have income limits?

No. FHA imposes no minimum or maximum income. What matters is your debt-to-income ratio — generally 43%, extending to 50% or higher with automated approval and compensating factors. This is one of the clearest differences between the two programs.

Which has lower mortgage insurance, FHA or USDA?

USDA, in both directions. Upfront: 1.00% vs. FHA’s 1.75%. Annual: 0.35% vs. 0.55%. On a $300,000 loan, the annual difference is roughly $50 a month. Neither cancels on its own — both run the life of the loan unless you put 10% or more down on FHA.

Can you refinance from FHA to USDA or vice versa?

You can refinance from FHA into USDA if the property and your income qualify, though it’s uncommon. Going the other direction — USDA to FHA — is more common, typically when a borrower’s income rises or they want to buy a multi-unit property. Both involve a full refinance with new closing costs.

What areas qualify for USDA loans?

More than most people expect. The Guaranteed Loan program covers communities up to 35,000 in population, which includes many outer suburbs and small cities. Roughly 97% of U.S. land area qualifies, though a much smaller share of the population lives there. Check the specific address on USDA’s eligibility map rather than guessing.

Can you buy a duplex with FHA or USDA?

FHA yes, USDA no. FHA finances 2–4 unit properties as long as you occupy one unit, and lenders typically count 75% of the market rent from the other units toward qualifying. USDA is strictly single-family owner-occupied with no income-producing use.

Which loan closes faster?

FHA, generally. USDA loans require a second review by Rural Development after the lender approves, which adds time — sometimes a week, sometimes considerably more depending on the office’s backlog. FHA closes in 30 to 45 days typically; USDA can run 45 to 60.

Do both programs allow gift funds?

FHA allows 100% of the down payment from approved gift sources — family, employers, charities, or government programs. USDA requires no down payment at all, so the question is mostly moot, though gifts can cover closing costs on both.

What credit score do I need for each?

FHA: 500 program floor with 10% down, 580 with 3.5% down. Most lenders overlay at 620.

USDA: no program minimum, but 640 is the practical threshold for automated approval. In both cases, the number you encounter is usually the lender’s policy rather than the program’s rule.

Can I use either loan for an investment property?

Neither. Both programs require the home to be your primary residence, and FHA requires occupancy within 60 days of closing. FHA’s 2–4 unit option is the closest thing to an exception — you can rent the other units, but you must live in one of them.

Program guidelines, fees, and income limits change without notice and vary by county. Verify USDA property eligibility at the USDA Rural Development site and confirm current requirements with an approved lender before signing a purchase agreement. RefiGuide.org is an advertising marketplace, not a lender.

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