Both FHA and USDA loans are government-backed. Both offer low down payment options. But they work differently — and picking the wrong one can cost you more than you'd expect over time. If you're comparing an FHA vs USDA loan, the best choice depends on where you're buying, what your credit looks like, and how much your household earns. So let's walk through how they actually compare, where buyers get confused, and how to figure out which one fits your situation.

How FHA and USDA Loans Compare at a Glance

FHA loans work almost anywhere in the country. USDA loans are restricted to eligible rural and suburban areas. That's the most important difference — and it filters out one option for a lot of buyers right away.

But location isn't the only factor. The two programs differ in down payment, credit requirements, income rules, and — most importantly — mortgage insurance costs. According to the Urban Institute's Housing Finance Policy Center, roughly 80% of FHA purchase loans go to first-time homebuyers, which shows how heavily this program skews toward buyers who need flexible entry points. USDA serves a similar audience but adds geographic and income guardrails in exchange for better long-term pricing.

USDA Loan Eligibility: Location, Income, and Credit

The Location Myth — USDA Covers More Ground Than You Think

Many buyers assume USDA loans are only for farmland or remote rural towns. That's not accurate. According to USDA Rural Development, approximately 97% of U.S. land area qualifies as USDA-eligible — and that includes a large number of suburban communities outside major metro areas. In Colorado, for example, towns like Pueblo, Alamosa, and many areas on the Front Range outskirts often fall within eligible zones. In Florida, large portions of central and northern Florida qualify as well.

Before you assume your target area doesn't qualify, check USDA's property eligibility tool directly. You might be surprised.

Income Limits: Higher Than Most Buyers Expect

USDA requires your household income to stay at or below 115% of the area median income (AMI) for your county. Per USDA Rural Development guidelines, limits also adjust upward for larger households — a family of five or six often has a higher cap than a couple would. So many buyers who assume they earn "too much" actually fit within the limit when they factor in household size and county-specific figures.

The income limit isn't based on just the borrower — it covers everyone in the home. That's a detail worth checking before ruling USDA out.

Credit Score Requirements

USDA typically requires a credit score of at least 640. Some lenders will go lower with strong compensating factors, but 640 is the standard threshold most use. If your score is below 620, FHA is likely the better path. But if you're at 640 or above and the property qualifies, USDA is worth a close look — especially because of what it does to your monthly costs.

You can explore more about how USDA financing works on our USDA loan options page.

FHA Loan Requirements and Who It Serves Best

The FHA loan program exists specifically to serve buyers who can't meet conventional loan standards. It has no location restrictions, no income limits, and accepts credit scores well below what most other programs require.

Credit Flexibility Is FHA's Biggest Advantage

Per HUD's FHA guidelines, borrowers with credit scores between 500 and 579 can qualify with a 10% down payment, while those with scores of 580 or above qualify with as little as 3.5% down. No other mainstream government loan program goes that low. So if your credit has taken some hits — medical bills, a past layoff, late payments from a few years back — FHA gives you a real shot at buying sooner.

FHA Loan Limits Vary by County

FHA does cap how much you can borrow. Limits are set each year by HUD and vary by county based on local home prices. Because these figures update annually, check HUD's loan limit lookup tool for the current limits in your specific county. In high-cost areas like Denver or parts of South Florida, the limits are meaningfully higher than in lower-cost counties.

USDA, by contrast, has no hard loan maximum. Your borrowing capacity there is constrained by your income and ability to repay — not a set dollar ceiling.

We work with buyers across both programs every day. In our experience with Colorado home buyers, FHA tends to come up most often for buyers in Denver, Colorado Springs, and other metro areas where USDA eligibility simply doesn't apply. USDA is a frequent topic for buyers in more suburban and rural parts of the state.

Mortgage Insurance: Where the Real Cost Difference Lives

This is the section most comparison articles skip over. The percentage difference between FHA and USDA mortgage insurance looks small on paper — but it adds up fast over time. And there's a second issue with FHA that most buyers don't know about until it's too late.

USDA Costs Less — and the Gap Is Real

On a $280,000 loan, here's how the annual mortgage insurance breaks down:

• USDA annual fee (0.35%): $980 per year, or roughly $82/month
• FHA annual MIP (0.55%): $1,540 per year, or roughly $128/month
• Difference: about $46/month, or $552 per year

Over five years, that's $2,760 in additional costs with FHA — just from the insurance difference. Per HUD's guidelines, FHA borrowers who put down less than 10% must pay annual mortgage insurance premiums for the life of the loan — there is no automatic cancellation. USDA's annual fee also doesn't disappear on its own, but because it starts lower, you're paying less throughout the life of the loan.

The Upfront Fee Difference Also Matters at Closing

Both programs charge an upfront fee rolled into the loan. USDA charges 1.0% of the loan amount. FHA charges 1.75%. On a $280,000 loan, that's $2,800 for USDA vs. $4,900 for FHA — a $2,100 difference before you even count the first monthly payment. So USDA wins on both the upfront and ongoing insurance cost if you qualify.

How to Choose Between FHA and USDA

The choice usually comes down to three questions. Where is the property? What is your credit score? And does your household income fall within USDA limits?

Choose USDA When:

• The property is in a USDA-eligible area (check the eligibility tool first)
• Your credit score is 640 or above
• Your household income is at or below 115% of the area median income
• You want to buy with no down payment and keep monthly costs low

Choose FHA When:

• You're buying in a city or metro area where USDA eligibility doesn't apply
• Your credit score is below 620
• Your household income exceeds USDA income limits
• You need a loan that works anywhere, without geographic restrictions

We often see buyers skip USDA without ever checking their eligibility. A buyer in a small Colorado town assumes they're not rural enough — but then looks up the property address and qualifies easily. That $0 down, lower MI payment changes the math on what they can afford. So check before you assume. Use the eligibility tool and run the numbers on both.

If you're weighing other programs too, our mortgage loan programs page lays out the full picture — conventional, FHA, USDA, VA, and more.

For buyers who want to explore all the down payment options available to them — including state assistance programs — it's worth looking at the full picture before committing to a loan type.

Frequently Asked Questions