What Is the Difference Between FHA Loans & Rural Housing Loans?

FHA and USDA loans are government loans that allow borrowers to purchase homes with significantly lower down payments than conventional loans. In some cases, no down payment is required.

Underwriting

FHA loans are underwritten by the U.S. Department of Housing and Urban Development's Federal Housing Administration program. USDA rural housing loans are underwritten by the U.S. Department of Agriculture's Rural and Community Development Programs.

Function

Both loan programs were created to allow low- and middle-income borrowers with less-than-perfect credit to buy homes with low down payments. FHA loans require a 3.5 percent down payment, while USDA loans do not require a down payment.

Types

Both types of loans have fixed and variable interest rate options. Although there are 15-year term mortgages available in both products, a majority of the borrowers select the 30-year term option.

Features

While FHA loans can be used to purchase or refinance homes anywhere in the United States within certain loan limits, USDA loans are allowed only in rural areas, as designated by the government.

Considerations

Both loan options allow borrowers to get into a home with little down payment, but both also require that private mortgage insurance be paid, either upfront or monthly. This can add thousands to the overall expense of the loan.

References

• HUD.gov: Why Ask for FHA Loan?
• Rurdev.USDA.gov: Individual and Family Opportunities