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USDA vs. FHA

USDA and FHA Home Loans are two widely used programs for Homebuyers seeking to avoid large down payments. Leaders Credit Union offers both loan programs. Homebuyers often don’t know that if they qualify for one, they likely qualify for either (based on comparable program credit qualifications).

Accordingly, it’s important that you understand how these loan programs compare so you can make the right choice. We think you’ll find the USDA Home Loan Program is superior when both options are available.

 

AVOIDING COSTS

*Example assumes $150,000 Home Purchase, 3.75% Interest Rate, 30-Year Term, and Standard Monthly Payments. Figures exclude lender imposed costs associated with closing.

Comparison FHA Mortgage USDA Mortgage USDA Savings
Down Payment (Minimum Required) $5,250 (3.5%) $0 (0%) $5,250
Up-Front Mortgage Insurance Premium (Financed In) $2,533 (1.75%) $1,515 (1%) $1,018
Monthly Mortgage Insurance Premium (First Payment) $102 $44 $58
Total Mortgage Insurance Premium (Over 30-Year Term) $21,891 $9435 $12,456

 

GAINING SAVINGS

*Example assumes $150,000 Home Purchase, 3.75% Interest Rate, 30-Year Term, and Standard Payments. Figures include savings associated with Down Payment, Principal, Interest, and Mortgage Insurance Premiums.

Comparison USDA Savings
YEAR 1 $5,709
YEAR 5 $7,409
TOTAL SAVINGS (Over 30-Year Term) $10,650

 

DETAILS

Down Payment Requirement

Down Payments are a common requirement of mortgage loans. USDA and VA (for military veterans) are the only standard, government backed mortgage programs with no down payment requirement.

USDA: Requires a minimum down payment of 0%. (NO DOWN PAYMENT – Zero – $0)

FHA: Requires a minimum down payment of 3.5%.

 

Up-Front Mortgage Insurance Premium

Government mortgages such as USDA, FHA, and VA (for military veterans) all have an up-front cost to participate in the program. In the case of USDA and FHA, it may be financed into the loan.

USDA: Up-front mortgage insurance premium rate is 1% of the loan amount.

FHA: Up-front mortgage insurance premium rate is 1.75% of the loan amount.

 

Monthly Mortgage Insurance Premium

With the exception of 20% down payment Conventional mortgages and VA mortgages (for military veterans), most standard mortgage products require a form of mortgage insurance. Mortgage insurance compensates the Lender in the event of a borrower default. In the case of USDA and FHA, the Mortgage Insurance Premium relates to the outstanding principal balance and is adjusted annually (meaning the dollar amount reduces/adjusts annually).

USDA: Monthly mortgage insurance premium rate is 0.35%.

FHA: Monthly mortgage insurance premium rate is 0.85%.

 

Costs, Savings, and Summary

USDA: If you qualify for the FHA Loan Program, there is good chance you also qualify for the USDA Home Loan Program. With the unique USDA home financing program, you can avoid a down payment, incur lower mortgage insurance premiums, and in total save thousands of dollars over the life of the loan term. The USDA Home Loan Program is clearly the superior option.

*Product information, generally and its use in the above calculations, is based on relevant mortgage product guidelines in effect on September, 1, 2017. Information, examples, calculations, charts, and comparisons assume a home purchase price of $150,000, minimum relevant mortgage product down payment, 3.75% fixed interest rate, 30-year loan terms, and full term/360 monthly standard payments. The information, examples, calculations, and charts excludes property taxes, property insurance, any applicable HOA dues, and lender imposed costs associated with closing. Lender makes no guarantees as to the availability of the example terms or interest rate, nor does Lender make any guarantees as to a consumer’s qualifications for these mortgage programs. Calculations are rounded to the nearest dollar and are not guaranteed as accurate.

Leaders Credit Union is an
Equal Housing Lender

Forward Lending Solutions
c/o Leaders Credit Union
P.O. Box 10008
Jackson, TN 38308

(844) 824-1735
info@forwardlcu.com

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ABA Routing 284383886