What are THREE key differences between USDA and FHA loans?
What are THREE key differences between USDA and FHA loans?
As you can imagine, this is an extremely common question that I receive and in today’s video I will compare USDA and FHA loans side by side in order to show you the facts.
Also, if you have not yet done so, feel free to download our newest “USDA Blueprint for Success” with the link below. This education resource is designed to help walk you through the USDA process step-by-step and is designed for both Realtors and homebuyers alike.
So, what are the differences between USDA and FHA loans?
As a starting point, although USDA and FHA loans are both thought of as first-time homebuyer programs, there are key differences between the two loan options.
#1. Down Payment?
USDA loans offer 100% financing which does not require a down payment. On the other hand, an FHA loan requires a minimum down payment of 3.5% of the purchase price, so on a sales price of $150,000 your minimum FHA required down payment would be $5,250 compared to $0 for a USDA loan.
#2. Closing Costs
Closing costs will be applicable on both USDA and FHA loans, but even though a USDA loan offers no down payment, that is not the same as “no money out of pocket”.
However, a USDA loan does allow for you to finance closing costs into the loan when the appraised value is higher than the contract sales price. This can be an extremely attractive feature depending on the appraised value,
FHA loans do not permit the financing of closing costs.
#3. Mortgage Insurance
When putting the minimum 3.5% down payment for an FHA loan, it requires a monthly mortgage insurance premium (MIP) of .85% of your loan amount for the full mortgage term (life of the loan) and also a one-time financed Upfront Mortgage Insurance Premium (UFMIP) of 1.75% paid at time of closing.
However, while a USDA loan does not technically have mortgage insurance, it still has what is called an annual fee that is calculated monthly within your payment, and although this fee is for the life of your loan, because it is only .35%, this is over 2X lower than the FHA MIP.
Additionally, USDA has a one-time financed Guarantee Fee of 1%, which is also lower than the 1.75% FHA UFMIP.
In summary, because many banks and lenders do not specialize in USDA loans, we commonly see homebuyers only offered FHA or Conventional programs.
I founded Metroplex Mortgage Services way back in 2001 and on top of being a top ranked USDA Approved Lender, my team is known for our overall government loan expertise and helping walk homebuyers through the mortgage qualifying maze.
If you need help, that is what we are here for, just call or email to discuss your scenario and let us show you the “Metroplex” difference.
Remember to download our USDA blueprint for success with the link below.
As always, I want everyone to make it a great day and I look forward to seeing you right here for the next tip of the week!
P.S. – You can download the USDA Blueprint for Success HERE:
