Government agency-backed loan programs are great options for first-time homebuyers or lower-income borrowers. USDA and FHA loans are both run by different government agencies and can be easier to qualify for than other conventional mortgage programs.
When comparing USDA and FHA loans, one is not really better than the other; the loan program that’s right for you will depend on your current situation. Both USDA and FHA home mortgage loans offer several differences that make them appealing to first-time homebuyers and low- to moderate-income borrowers.
As a leading Kansas City mortgage company, First Fidelis can make the lending process easy for you. Our USDA and FHA loans are designed to make home buying and refinancing a lot more affordable. Here’s what you need to know about FHA and USDA loans in Kansas City.
What Is a USDA Loan?
USDA loans are offered by private lenders and backed by the U.S. Department of Agriculture. With USDA loans, borrowers must meet certain income and location requirements since these loans are only available to those living in qualifying rural communities.
While the process of getting a USDA loan may take longer than an FHA home loan, it’s only because USDA loans must be underwritten twice. Typically, the lender will underwrite the loan first, and then it will be underwritten again by the USDA. However, if you have a credit score of 640 or higher, the loan is automatically underwritten by the USDA without extra time involved.
Benefits of a USDA Loan
USDA home lenders can work with you to find the perfect loan program for your unique situation. A USDA loan offers many benefits to home buyers, including:
- No down payment requirement
- Low mortgage insurance rates and fees
- The seller can pay any closing costs
- Often cheaper than an FHA loan, both upfront and long term
- Lenders may not require that you possess cash reserves to secure any financing options
- No borrowing limit; maximum loan amount depends on your ability to repay
USDA Loan Eligibility Requirements
USDA mortgages are meant to increase homeownership rates and the economies in rural areas. Therefore, you must live in a qualified rural area to take advantage of a USDA loan. Your location must also meet certain state property eligibility requirements.
USDA loans have other eligibility requirements as well. Your credit score must be at least 640 or higher, and you must have a fairly low debt-to-income ratio—around 50 percent of your income or less.
Finally, USDA loans have strict income level rules. These can vary depending on the number of people in your household and the location of the home. If your income is more than 115 percent of the median income in that area, you’re ineligible and cannot qualify for a USDA loan.
What Is an FHA Loan?
An FHA home loan is backed by the Federal Housing Administration and offered through private lenders. While an FHA loan process may take more time than a USDA loan, it offers a lot of flexibility for home buyers with lower credit scores.
However, FHA home loan requirements do specify a maximum lending amount depending on your location, so it’s important to keep this in mind as you shop for homes.
Benefits of an FHA Loan
Some of the main benefits of an FHA mortgage loan include:
- Requires a credit score of 580 or higher, so it’s great for those with lower credit
- No income requirements or limits
- Higher debt-to-income ratio allowed
- FHA home interest rates tend to be lower
- Gift allowance is permitted, where a family member can give you the full amount of money required for the down payment
FHA Loan Eligibility Requirements
Only first-time homebuyers can be approved for an FHA loan. This also includes borrowers who haven’t owned a home in at least three years.
While there are no income requirements for FHA loans, you will have to prove your income amount and show that you can make monthly mortgage and insurance payments. FHA loans also allow for a higher debt-to-income ratio, particularly if you have a higher credit score.
Typically, most FHA loans require down payments. Fortunately, however, First Fidelis offers FHA loans with a zero down payment.
If you’re a first-time home buyer or looking to refinance, First Fidelis is here to help. We offer our customers USDA and FHA loan options, so our expert lenders can find the right loan program for you. Get started with our pre-approval application, or contact us today at 913-205-9978.