Buying a home can feel out of reach when your income or savings aren’t as robust as you’d like — but there are affordable, government-backed mortgages designed to help.
U.S. Department of Agriculture (USDA) loans and Federal Housing Administration (FHA) loans are two options. Each has its own criteria for would-be buyers, so understanding the differences between them is important.
This guide will compare key features of USDA and FHA loans, such as how they differ, eligibility requirements and why one might make more sense than the other for your lifestyle and budget.
Key Takeaways
- USDA loans have strict income and rural-area requirements, while FHA loans are available to most borrowers nationwide.
- Both loans can be good choices for borrowers with limited income or those who can only make a low down payment.
- USDA loans require no down payment, whereas FHA loans generally require a small one.
- USDA loans can only be used to buy a single-family home, but FHA loans can be used for single-family homes, multifamily homes (up to four units), condos and approved manufactured homes.
USDA Vs. FHA Loan: What’s The Difference?
USDA and FHA loans are both backed by the government. They share some similarities, but when you are trying to choose between the two, it is important to understand how they differ.
USDA Loans
There are two main types of USDA loans – direct and guaranteed. Both loans require you to purchase a home in a USDA-designated rural or semirural area. That rural or semirural distinction is defined by a combination of location and population; these are mostly communities with populations limited to 10,000 or 20,000 (or in some cases, up to 35,000). You can learn more about the eligible areas on the USDA eligible property map.
USDA Direct Loan
USDA direct loans, also called Section 502 direct loans, are issued straight from the USDA Rural Development Service Centers, not through a private lender. They’re designed specifically for low- and very-low-income households looking to buy a single-family home in a rural or semirural area.
To qualify, your household income needs to be either low income (50% – 80% of your area median income [AMI]) or very low income (below 50% AMI). You can check the USDA website to see if your income is eligible for a direct loan based on the location where you want to buy.
Keep in mind that direct loans also come with borrowing limits that vary by county. The USDA has an online map you can use to look up the limits.
There are also two further requirements: You cannot purchase a house larger than 2,000 square feet, and it must be a single-family home.
USDA Guaranteed Loan
Backed by the USDA (90% guarantee) but offered through agency-approved lenders, USDA 502 guaranteed loans have less strict requirements (in particular, for income and loan amounts) than USDA direct loans.
Eligible borrowers must have a USDA-adjusted household income of no more than 115% of the area’s median income, but there are no size restrictions on the home and no price cap on the loan. A guaranteed loan can be a better choice if you want fewer limits.
Borrowers can use a USDA guaranteed loan to purchase, rehabilitate, improve or build a home in an eligible rural or semirural area, with no down payment required. However, if you use a USDA guaranteed loan, you will be responsible for paying up-front and annual guarantee fees, unlike a USDA direct loan buyer.
FHA Loans
If you can’t afford a large down payment, or are still working on improving your credit score, an FHA loan, insured by the Federal Housing Administration, can be a good choice. While you must work with an FHA-approved lender, the U.S. Department of Housing and Urban Development (HUD) offers an online search engine to help you find one.
Unlike USDA loans, there are no restrictions on where you buy or income limits, but your property must meet HUD health and safety guidelines. You can use an FHA loan to purchase single-family homes, multifamily homes (up to four units), condos and approved manufactured homes within FHA-designated mortgage limits.
Like USDA loans, FHA loans are intended only for primary residences and cannot be used for investment properties or second homes.
Compare Mortgage Offers From Verified Lenders:
USDA Vs. FHA Loan Requirements
USDA and FHA loans each come with distinct requirements for credit scores, debt-to-income ratios and eligibility. While the differences may look small on paper, they can significantly impact your budget, depending on your situation.
Credit Scores
The USDA does not require a specific credit score, but a score below 640 requires a full credit review. Such a review would involve showing a few examples of your credit history, such as proof of on-time paid rent over the past 2 years.
Typically, FHA lenders want borrowers to have at least a 580 credit score. In some cases, if you can make a down payment of 10%, a score between 500 and 579 can be accepted.
Debt-To-Income Ratio (DTI)
Your debt-to-income ratio is a measurement of how much of your gross monthly income goes toward paying debt. Typically, USDA loans (both types) call for a DTI of no more than 41%.
You typically need to have a 43% ratio or lower to qualify for an FHA loan, but some lenders may accept 50% if other aspects of the application are strong.
Terms and Rates For USDA And FHA Loans
If you qualify for a USDA direct loan, you can choose a longer loan repayment term: 33 years or, in some cases, 38-year terms. USDA guaranteed loans come with 30-year terms. In both cases, adjustable-rate mortgages (ARMs) are not available; only fixed-rate loans.
FHA loans are typically 15-year or 30-year mortgages and can have fixed- or adjustable rates; interest rates vary by lender.
What’s Your Goal?
Buy A Home
Discover mortgage options that fit your unique financial needs.
Refinance
Refinance your mortgage to have more money for what matters.
Tap Into Equity
Use your home’s equity and unlock cash to achieve your goals.
USDA Vs. FHA: Loan Eligibility
USDA loans are specifically designed for very low (direct loans) to moderate-income households (guaranteed loans), which means your earnings must fall within defined limits based on where you intend to buy.
- For direct loans, your income is capped at 80% of the area median income; borrowers under 50% AMI may be eligible for different terms.
- If you want to use a USDA guaranteed loan, you cannot earn more than 115% of the area median income.
FHA loans don’t have the same stringent requirements. For example, a higher income won’t prevent you from qualifying for an FHA loan, unlike a USDA loan.
As previously mentioned, USDA loans are only available in areas designated as rural or semirural; FHA loans have no such restrictions and can be used to purchase homes anywhere in the country.
USDA and FHA loans do have some similarities in terms of eligibility. For example, if you use either type of loan, the home must be your primary residence. You can’t buy investment properties using a USDA or FHA loan. However, FHA loans offer slightly more flexibility by allowing borrowers to purchase multiunit properties, provided they live in one of the units.
FHA properties must pass an appraisal and meet all safety and livability standards set by the U.S. Department of Housing and Urban Development. USDA loans follow similar government-issued property requirements, requiring homes to be safe, structurally sound and suitable for occupancy. In both cases, the property must also undergo an appraisal to confirm its value and condition before the loan can be approved.
Ready To Become A Homeowner?
Get matched with a lender that can help you find the right mortgage.
USDA Vs. FHA Loans: Up-Front And Annual Costs
USDA and FHA loans both have associated costs, but USDA loans tend to have fewer added costs – in particular if you qualify for a USDA direct loan.
Up-front fees:
- USDA guaranteed loan: There is a 1% up-front guarantee fee, which can often be rolled into the mortgage.
- FHA loan: Expecta 1.75% up-front mortgage insurance premium (MIP), which increases the initial cost of borrowing. You may be able to roll it into your mortgage.
Guarantee fees and MIPs:
- USDA guaranteed loan: There is an annual fee of 0.35% of the remaining principal balance, typically included in your monthly payments. USDA direct loans do not have a guarantee fee.
- FHA loan: FHA annual mortgage insurance premiums vary by loan term, amount, and loan-to-value ratio (LTV). For most 30-year FHA loans, the annual premium is about 0.55% of the loan balance. Borrowers with less than 10% down pay MIP for the life of the loan, while those who put down 10% or more pay MIP for 11 years, after which it falls off.
- FHA annual mortgage insurance premiums typically range from about 0.15% to 0.75% of the loan balance, depending on loan term, loan amount and loan-to-value ratio. For most borrowers with standard FHA 30-year loans and low down payments, the annual premium is commonly around 0.55%.
Take The First Step To Buying A Home
Find a lender that will work with your unique financial situation.
USDA Vs. FHA: Loan Limits In 2026
- USDA: As of February 10, 2026, the USDA area loan limit for a single-family housing direct loan ranges from $324,700 to $749,400, depending on the county; there are no strict loan limits for USDA guaranteed loans beyond those that specific lenders might impose.
- FHA: In 2026, FHA loan limits for a single-unit home range from $541,287 in most lower-cost areas to $1,249,125 in high-cost metropolitan regions. In Alaska, Hawaii, Guam and the U.S. Virgin Islands, limits can be even higher (up to $1,873.675) to reflect elevated construction costs, though they still vary by county.
At A Glance: USDA Vs. FHA Loans
Let’s take a quick look at a side-by-side comparison of USDA vs. FHA loans to highlight the differences in eligibility, costs and loan requirements.
| USDA | FHA | |
|---|---|---|
| Down Payment | 0% | Minimum 3.5% |
| Terms | Direct loans: 33 years or 38 years for some borrowers under 50% AMI Guaranteed loans: 30-year term | Typically offered as 15-year or 30-year mortgages |
| Location Requirement | Only in USDA-designated rural or semirural areas | Anywhere in the U.S., including territories |
| Income Limits | Direct loans: 80% AMI (different terms may apply for borrowers under 50% AMI) Guaranteed loans: 115% AMI | None |
| Credit Score Requirement | Direct loans: varies Guaranteed loans: Usually 640 | 580 (500 – 579 may be allowed with a down payment of 10% or more) |
| Property Type | Single-family homes only | Single-family, multifamily (up to four units), condos, approved manufactured homes |
| Occupancy | Primary home | Primary home |
| Loan Limits | Direct loans: $324,700 – $749,400 (2026) Guaranteed loans: no limit | Single-unit home: $541,287 – $1,249,125 (2026), varies by county and in some special cases, high-cost areas like Hawaii, Guam, Alaska and the U.S. Virgin Islands have higher limits, up to $1,873,675. |
| Guarantee Fees / Mortgage Insurance Premiums | Guarantee fee: USDA guaranteed loans carry a 1% up-front fee and a 0.35% annual fee. USDA direct loans do not carry these fees. (No MIP) | Up-front MIP: 1.75% Annual MIP: varies for duration of loan, or ends after 11 years if your down payment was 10% or more. (No guarantee fees) |
| Interest Rates | Direct loans: 5% fixed rate effective April 1, 2026 (can be as low as 1% with payment assistance) Guaranteed loans: fixed interest rate set by lender | Fixed or variable rates, varies by lender |
FAQ
The Bottom Line: Choose The Loan That Fits Your Location, Income And Goals
USDA and FHA loans were designed to level the playing field for borrowers who might not otherwise be able to afford a conventional mortgage to purchase a home.
An FHA loan may be a better choice if you live in a city or large suburban area and can afford to make a small down payment. If you live in a rural or semirural area, have a low or very low income and cannot afford a down payment, a USDA loan could help make homeownership possible.
Learning about how these loans work and who is eligible for them can help you make a decision and find a mortgage that is right for you.
Ready to find the right loan for your situation? Check out the latest mortgage rates.
Maya Dollarhide
Maya Dollarhide is a freelance writer with over a decade of experience covering personal finance topics. Her writing credits include AARP, Bankrate, Investopedia, CNN.com, Yahoo Finance and Lending Tree. She enjoys writing articles and producing multimedia content that helps individuals and families make informed decisions about their money, from mortgages and home loans to reducing credit card debt and saving for retirement. She has also created educational materials for use in schools to teach young people about personal finance, from opening up a bank account to saving for college and beyond.
