What Is the Difference Between a USDA Loan & an FHA Loan?

USDA and FHA loans are excellent programs for families to buy a home.

USDA and FHA loans are excellent programs for families to buy a home.

Buying a house is one of the most important goals in life for most people. Making that dream come true doesn’t necessarily require a high income since there are government-backed programs designed to help people to buy their own home. Two of the most popular options are the USDA Home Loan and FHA Loan and both have excellent benefits, but they are very different from each other.

Difference Between FHA and USDA Loan

The primary difference between FHA and USDA Loans are who is eligible for the programs. The USDA Home Loan is a U.S. Department of Agriculture Program that focuses on homes in some rural regions, but not necessarily a farm. Federal Housing Administration (FHA), is part of U.S. Department of Housing and Urban Development (HUD) and is very popular among first-time homebuyers. In this case, the borrower has to pay for mortgage insurance that will protect the lender if the borrower is unable to pay the loan.

Another difference is that while USDA Loans offer 100-percent financing and doesn’t require an initial payment, the rural development loan requires at least a downpayment of 3.5 percent.

Who Is Eligible for a USDA Loan?

According to the United States Department of Agriculture, 127,000 families used a USDA home loan to buy a home in 2017. People applying for this program must have a stable income and a credit score above 640. Applicants with a lower score still have a chance but are subject to manual underwriting. It’s possible to apply online, at the USDA website.

The loan targets homes in the rural area. That means that it can’t be part of an urban area and the population must be up to 35,000.

Who Is Eligible for an FHA Loan?

People with a credit score of 580 or higher can apply for an FHA Loan and a downpayment of 3.5 percent is required. In case the credit score is lower, the applicant is still eligible for the loan, but the down payment increases to 10 percent.

Tax Law 2018

According to the Tax Cuts and Jobs Act ( TCJA), it has established new limits for homeowners' deductions for 2018-to-2025. Applicants will have to file Form1098. Now it’s possible to deduct interest on up to $750,000 of mortgage-related expenses to buy or improve a home. In the case of married couples filing separately, the limit is $375,000.

Tax Law 2017

In 2017, homeowners can claim a deduction from their federal income taxes on home loans up to $1 million.

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About the Author

Luana Ferreira has a bachelor in journalism since 2010. She started her career on television in Brazil, working as a producer for newscasts, but soon moved to print and online publications. She works as a freelance writer since 2012 and has written about finances, business and entrepreneurship for prestigious publications like BBC, Entrepreneur, Playboy and Sapling.

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