We are commonly asked by Ocala area home buyers which mortgage option is better – FHA or USDA? In short, USDA Rural Housing is the financially better choice for eligible home owners in Marion County. Please note we used the word “eligible” in that last sentence because there are certain factors that determine if you household will be eligible for the USDA Rural loan. These USDA eligibility requirements do not apply to FHA or Conventional loans. Below we will discuss the basic differences and what home buyers need to know when looking at these different home loan options.
- USDA is the only loan in the Ocala suburb area that offers 100% financing for non-military homebuyers. The FHA loan will require a minimum of 3.5% down payment. But what if you are a homeowner that wants to put money down on your home loan? USDA will allow this; you are not required to financing 100% of your home loan. +1 for USDA (100% financing)
- USDA and FHA both require a one-time upfront funding fee (or guarantee fee) that is added to the borrower’s loan amount. USDA is 1.0% of the loan amount; FHA is more at 1.75% of the loan amount. The advantage to USDA on this one. However (and this is a big one) they both also require monthly mortgage insurance costs that will be included in the homebuyers payment each month. Most people know this term as “PMI” The biggest advantage to the USDA mortgage is that the monthly mortgage insurance is about half when compared to FHA. So when comparing numbers on a basic $150,000 home, the USDA loan option is going to save the home owner about $45 per month. In addition to this, the USDA home buyer will NOT be required to put down any money (remember FHA requires 3.5% down payment) +2 for USDA ( monthly MI and payment much less)
- How about eligibility requirements for USDA? The big thing is location – USDA home loan are only available in rural defined locations around Ocala. The immediate metro area of Ocala will NOT be eligible for the program. Homebuyers looking to live in the immediate area of Ocala city limits will likely be required to do an FHA, VA or Conventional loan. However, many expanding suburb locations eligible. The USDA location map can be found by clicking here. In addition to the locations – USDA has a cap on the household income. This differs from county to county and household size, but the household income limits generally start at $75,650. Please click here for the USDA household income limits. It’s important to remember the household income caps apply to ALL household members that receive income, regardless if they are on the mortgage application or not. +1 for FHA (no location or income requirements)
- The time it takes a little more time to close – USDA loans go through a two-tier approval process. First with the lender, second with the USDA. As a result, the USDA loan will take about a week or longer to close when compared to FHA loans. +2 for FHA (faster closing time)
- Closing Costs – Both USDA and FHA permit the home seller to pay up to 6% of the buyers closing costs. This is great assuming the seller will do this during negotiations. But what if the seller does not want to pay any concessions towards the buyers closing costs? USDA will permit a second option so to speak. The buyer will be permitted to roll their closing costs into the loan assuming the home appraises for higher than sale price. FHA will not permit this – if the sellers don’t pay your closing costs, you must pay them. +3 for USDA (two options to help pay closing costs)
If you are home buyer thinking about purchasing a home in the Ocala area, and your household income is below the limit, definitely take a look at the USDA loan. If you do not meet these requirements, please click here to learn more about the FHA loan. Both USDA and FHA have similar requirements in regard to qualifying and credit.
If you are currently pre approved for FHA loan, you will likely also be approved for USDA housing assuming your location and household income meet the eligibility requirements. USDA and FHA are both sound and secure government back 30 year fix loans. Please read all the most current USDA faqs and things you need to know about the program. Learn more about the USDA program by visiting https://usdamortgagesource.com or call 800-743-7556
Serving all of Marion County including Belleview, Citra, Dunnellon, Eastlake Weir, Eureka, Fort McCoy, McIntosh, Ocala, Ocklawaha, Orange Springs, Pedro, Reddick, Romeo, Salt Springs, Summerfield, Weirsdale. Comparing USDA.