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USDA Loans vs FHA Loans – Which is Better & Why?

When you are looking for a new home, it is important to understand the different types of loans that are available. There are two main types of mortgages: USDA Loans and FHA Loans.

Both have pros and cons, so it can be difficult to decide which one is right for you. This article will compare and contrast USDA Loans vs FHA Loans to help you apply for USDA Loans in Dallas, Texas!

What Is a USDA Loan?

A USDA loan is insured by USDA. The USDA guarantees the loan, making it easier for you to qualify for a low-interest rate and monthly payment.

There are two types of USDA loans. 

Direct loans are made directly by the USDA to eligible borrowers, while guaranteed loans are made through private lenders.

Eligibility for a direct loan requires that you must have a low or very low income and be unable to get a loan from another source. You must have a moderate income and decent credit history for a guaranteed loan.

What Is an FHA Loan?

A mortgage insured by the FHA is called FHA Loan. The FHA does not lend money to borrowers; rather, it provides protection through mortgage insurance (MIP). The borrower is unable to make his or her payments. There are two types of FHA loans: 203(b) and 203(k). The number refers to the section of the National Housing Act that creates the program.

203(b) is the most common type of FHA loan. It allows you to finance the purchase of a home with a down payment as low as three percent. With this loan, you can finance the cost of repairs or renovations to an existing home.

203(k) loan is for people who want to buy a home that needs major work, including a roof, new windows, or a new HVAC system. The loan covers the cost of the work and gives you money to buy the home.

Difference Between FHA Loan And USDA Loan

The difference between an FHA loan and a USDA loan is that an FHA loan requires a down payment of at least three and a half percent, while a USDA loan does not have a down payment requirement.

Another key difference is that you can qualify for an FHA loan with a credit score of as low as 580, while you need a credit score of 640 to qualify for a USDA loan.

What To Consider While Deciding Between An FHA And USDA Mortgage Loan

When deciding if an FHA or USDA loan is better for you, there are several things that you should take into consideration:

  •         Your credit score
  •         The Down payment
  •         Your employment history
  •         Your debt-to-income ratio
  •         The location of the property that you want to purchase


If you have a low credit score, then an FHA loan might be the best option for you. If your credit score is high and/or a lot of money saved up for a down payment, then a USDA loan might be better. Talk to your lender about which program is best for you.

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