Buying your first home is an exciting milestone, but it also involves making some big financial decisions. Two popular options for first-time homebuyers are USDA loans and FHA loans. They both offer low down payments and flexible credit requirements. However there are some key differences when it comes to eligibility costs, and long-term affordability.
One way to decide if a USDA or FHA loan is better for your situation is to use an online mortgage calculator to compare estimated monthly payments upfront fees and total interest costs. Read on for an in-depth look at how to calculate whether a USDA or FHA loan is the more affordable option for you.
USDA Loan Calculator
The USDA Rural Development website provides a handy loan payment calculator to estimate your monthly mortgage payment with a USDA-backed loan.
Here’s a brief overview of the inputs:
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Home Price & Downpayment: Enter the home purchase price and your down payment amount. USDA loans require no down payment.
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Loan Structure: Input your desired loan term, estimated interest rate, upfront guarantee fee (1% of loan amount), and annual guarantee fee (0.35%).
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Other Costs: Estimate your property taxes, homeowner’s insurance, and any other monthly housing expenses.
Once submitted, the calculator estimates your all-in monthly payment including principal, interest, taxes, insurance, and fees. It also breaks down your total borrowing costs over the full loan repayment period.
This calculator can give you a ballpark idea of affordability when considering a USDA home loan.
FHA Loan Calculator
The Federal Housing Administration (FHA) also offers an online mortgage calculator to estimate payments and costs for an FHA-insured loan.
Key inputs include:
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Loan amount: Your desired mortgage loan amount
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Down payment: At least 3.5% for borrowers with 580+ credit scores
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Interest rate: Check current rates for your credit score
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Loan term: Typically 30 years for FHA
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Upfront MIP: FHA upfront mortgage insurance premium (1.75% of loan amount)
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Annual MIP: 0.45% to 1.05% of loan balance per year
The FHA calculator then shows your estimated monthly mortgage payment including principal, interest, taxes, homeowner’s insurance, and annual MIP.
It also displays your projected loan costs over time including total interest paid, mortgage insurance, and amount repaid to principal.
Comparing USDA vs FHA Loans
When trying to decide between USDA vs FHA loans, looking at sample mortgage calculations can provide some useful insights.
Here is a comparison of how monthly payments and long-term costs might differ between USDA and FHA loans for the same $200,000 home purchase:
| Loan Feature | USDA Loan | FHA Loan |
|---|---|---|
| Purchase Price | $200,000 | $200,000 |
| Down Payment | $0 | $7,000 (3.5%) |
| Loan Amount | $200,000 | $193,000 |
| Interest Rate | 3.5% | 3.5% |
| Monthly Principal & Interest | $898 | $871 |
| Monthly Mortgage Insurance | $58 | $144 |
| Total Monthly Payment | $956 | $1,015 |
| Total Interest Over 30 Years | $155,809 | $149,099 |
| Total Mortgage Insurance | $20,880 | $51,840 |
In this example, the USDA loan has a lower monthly payment than the FHA loan, saving $59 per month.
The FHA loan requires a 3.5% downpayment of $7,000, whereas the USDA loan requires nothing down.
Over the full 30 year term, the USDA loan accrues slightly more interest but significantly lower mortgage insurance costs compared to the FHA loan.
So while monthly payments are close, the USDA loan represents over $30,000 in total savings over 30 years due to lower mortgage insurance fees.
Factors to Consider
When comparing USDA vs FHA loans, you’ll want to weigh additional factors like eligibility, home location, rates, and credit requirements.
Eligibility
- USDA has income limits; FHA does not
- USDA requires living in a rural-designated area; FHA does not
Costs
- USDA typically has lower mortgage insurance rates
- USDA has no down payment; FHA requires 3.5% down
Credit
- FHA allows scores as low as 580; USDA typically requires 640+
Interest Rates
- Both offer competitive interest rates due to government backing
Home Types
- USDA is for single family homes; FHA allows 2-4 unit properties
Doing mortgage calculations for both loans can help reveal the difference in monthly payments and long-term costs based on your specific loan amount, down payment, and mortgage insurance situation.
Be sure to get rate quotes from multiple lenders and ask them to provide sample USDA and FHA loan calculations before making your final decision. This will ensure you choose the most affordable government-backed mortgage option for your budget and financial situation.
7 Tips for Choosing Between USDA and FHA
If you’re trying to decide between USDA and FHA loans, here are 7 tips to help choose the better option:
1. Check your eligibility
- Make sure you meet USDA income and geographic limits
2. Compare costs
- Calculate payments with a USDA vs FHA mortgage calculator
3. Shop mortgage rates
- Get quotes from multiple lenders for both loans
4. Review credit requirements
- FHA is more flexible for lower credit scores
5. Understand differences in fees
- USDA has lower mortgage insurance costs
6. Ask about discounts
- Look for lender discounts to lower your interest rate
7. Consider long-term goals
- USDA and FHA loans can be great starter loans to eventually refinance
Doing thorough mortgage calculations, checking eligibility, and shopping rates can help you determine if a USDA or FHA loan is the more affordable option for your home purchase.
Frequently Asked Questions
Q: What credit score is needed for a USDA loan?
A: The minimum credit score is typically 640 for a USDA loan, but scores of 620 may be allowed with strong compensating factors.
Q: Can I get a USDA loan for a condo?
A: Yes, USDA loans can be used to purchase condos, townhomes, and other eligible property types, as long as they meet program guidelines.
Q: How accurate are mortgage calculators?
A: Online mortgage calculators provide estimates, but your actual payments may vary slightly based on factors like your property taxes, insurance, and final loan costs.
Q: What are the income limits for USDA loans?
A: USDA income limits vary by area but are typically 115% of the median household income for your county. Look up the USDA income eligibility guidelines for your state.
Q: Can I get a USDA loan with a 500 credit score?
A: No, the minimum credit score for a USDA loan is around 640 in most cases, making approval with a 500 credit score unlikely. An FHA loan is a better option for borrowers with credit scores below 580.
The Bottom Line
Using mortgage calculators to estimate and compare monthly payments for USDA and FHA loans can provide great insight into which option may be more budget-friendly based on your financial situation.
Be sure to consider all eligibility requirements, home location restrictions, credit score requirements, and long-term mortgage insurance costs when deciding between USDA vs FHA loans. Getting rate quotes from multiple lenders and doing your own USDA vs FHA mortgage calculations will ensure you choose the best loan program to finance your home purchase!
Differences between USDA and FHA loans
When comparing USDA vs FHA loans, both government-backed, differences emerge in terms of application, underwriting, appraisal, loan amounts, mortgage insurance, interest rates, and more. Prospective borrowers should carefully analyze the details of USDA vs FHA loans to make an informed decision based on their specific financial circumstances and homeownership aspirations.
USDA vs FHA: Overview
The choice between USDA and FHA loans is often pretty easy since they’re targeted at different types of buyers.
The USDA loan program is meant to make homeownership more accessible in lower-income rural areas. Only certain locations qualify, and you have to be within income limits to apply.
The FHA loan program is more widely available. Buyers can apply in any part of the country, and there are no income restrictions to qualify. But where the FHA program really stands out is its lenient credit score requirements. Home buyers can apply with a FICO score of just 580 and 3.5% down. For this reason, FHA loans are usually recommended for borrowers with credit scores too low to qualify for a standard conforming mortgage loan.