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How do the benefits of a USDA home loan compare to FHA loans for first-time homebuyers?

July 9th, 2021 by Sean Stephens

When first-time home buyers are comparing a USDA home loan vs. the FHA loan program, it is important to understand the key benefits and differences of each. In today’s video I will compare the benefits of a USDA Home Loan vs. an FHA loan so you can see the differences side by side.What are the differences between a USDA and FHA loan in Florida?

Now, before we get started, don’t forget to take advantage and download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the USDA home loan process step-by-step and is a great educational resource for first-time homebuyers.

How do the benefits of a USDA home loan compare to FHA loans for first-time buyers?

As a starting point, although USDA and FHA loans are both available first-time homebuyer programs, there are distinct differences between the two loan options.Benefits of a USDA Home Loan in Florida

Today we will compare and contrast USDA Home Loans vs. FHA loans along with discussing key benefits such as down payment requirements, closing costs, and the borrowing costs associated with each program.

Is a Down Payment Required?

One of the most well known benefits of a USDA loan is that there is  no down payment required!

However, unlike USDA loans which offer 100% financing, an FHA loan requires a minimum down payment of 3.5% of the sales price.  For example, on a sales price of $150,000 ,your minimum down payment on an FHA loan would be $5,250 compared to no down payment for a USDA loan.

How do Closing Costs compare?

Another important benefit of a USDA loan is that it allows you the flexibility to finance closing costs into the loan.  This can happen in situations where the appraised value is higher than the contract sales price.  Obviously, the ability to minimize out-of-pocket costs can be an extremely attractive feature to first-time homebuyers.

In contrast, FHA loans do not permit the financing of those out-of-pocket closing costs.

Remember that no down payment does not mean the same thing as no money-out-of pocket and closing costs will apply on both FHA or USDA loans.  However, depending on your appraised value, a USDA home loan has the ability to finance those out-of-pocket costs into your loan which can be a another key benefit for first-time homebuyers.

How is Mortgage Insurance Calculated?

While a USDA loan does not technically have mortgage insurance, it still has what is called an annual fee that is calculated at .35% of the loan amount.  Further, although this fee is for the life of the loan term, because it is over over 2X lower than the FHA Mortgage Insurance Premium (“MIP”) this results in significantly lower borrowing costs.

Additionally, a USDA home loan has a one-time financed Guarantee Fee of 1%, which is also lower than the 1.75% FHA Upfront Mortgage Insurance Premium (UFMIP).

Additionally, it requires a monthly mortgage insurance premium (MIP) of .85% of your loan amount which last for the entire mortgage term when using less than 10% for down payment.

Example Scenario:

Sebring FL benefits of a USDA Home Loans for First-Time Homebuyers

In summary, because many banks and lenders do not specialize in USDA loans, we commonly see first-time homebuyers only offered FHA or Conventional programs.

As you can see, it’s important for you to understand the differences and also to know that  we are here to help walk you through the process.

On top of being a top ranked USDA Approved Lender, my team is known for our overall government loan experience and our specific USDA loan expertise.

Just call or email to discuss your scenario and let us show you the “Metroplex” difference.

800-806-9836 Ext. 280
SeanS@MPLX.org

As always, I want everyone to make it a great day, and I look forward to seeing you right here for the next tip of the week!

P.S. – You can download the USDA Blueprint for Success HERE

Tampa FL USDA Approved Lender List - What are the benefits of a USDA home loan in Florida

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