What are the differences between FHA and USDA loans?

What are the differences between FHA and USDA Loans?

Welcome back everyone, Sean Stephens here again with Metroplex Mortgage Services and another USDA Loan Pro video quick tip.

What are the differences between FHA and USDA loans?  This is a common
question that my team receives, so in today’s video tip I wanted to break down the differences between FHA and USDA loans and explain the benefits.

Also, if you have not yet done, so please take advantage of our free second opinion service which is great for both pre-qualifications or for loans currently in progress.  This is a great way to double-check where you stand and make sure your financing is on track!

So, what are the differences between FHA and USDA Loans?

As a starting point, although FHA and USDA loans are both thought of as first-time homebuyer programs, they are also eligible for previous homeowners.  Provided it is a primary residence, this can be a great option for a buyer looking to sell and move up to another property.

Remember though, both FHA and USDA loans only allow for primary residences, so no investment properties or second homes.  

Let’s take a look at the following example to show you the key differences between FHA and USDA loans.  Any figures in this example are dependent on the amount financed and for this scenario we are using a $100,000 loan amount.

$100,000 Loan / 30 year term

FHA Loan

• 3.5% down payment
• .85% Monthly MIP (Mortgage Insurance Premium)
• Equals a $70.83 monthly MIP payment
• One time up-front financed mortgage insurance is currently 1.75%, or $1,750 in this example.
• NOT able to  finance closing costs

USDA Loan

• USDA loans allow for NO DOWN PAYMENT (100% Financing)
• .50% monthly premium
• Equals a $41.67 monthly payment
• One time financed Guarantee Fee is currently 2.75%, or $2,750 in this example.
• You can finance closing costs with a USDA loan

Remember, USDA Loans allow for the ability to finance closing costs when the appraised value is higher than the contract sales price.   

Understanding the differences between FHA and USDA loans is important, because since many banks and lenders do not specialize in the USDA program, we commonly see homebuyers only offered FHA or Conventional loans. 

When it comes to government loan programs I always say, don’t be scared – be aware!