Zero-Down USDA Home Loans vs FHA vs Conventional 97

March 3, 2017 - 4 min read

How Affordable Are USDA Home Loans?

Home buyers looking for a zero downpayment mortgage with low monthly payments should consider USDA home loans.

The United States Department of Agriculture (USDA) loan, also known as the (RD) loan, requires no downpayment and is available to lower-credit applicants.

Interest in these loans is growing as buyers learn their benefits. More than 166,000 families used a USDA loan in fiscal year 2015 alone, according to the agency.

Buyer enthusiasm is not surprising. The USDA loan is the only on the market today for home buyers without military service history.

Rural Development loans are available based on location of the property, not life experience. Specifically, USDA buyers need only to find a home in a “rural” area as defined by USDA. But the definition of rural is quite liberal: about 97 percent of all U.S. land mass is eligible.

USDA loans come with ultra-low rates and less expensive mortgage insurance, beating affordability of even FHA loans.

Most home buyers are surprised at just how affordable these loans are.

Verify your low down payment loan eligibility

USDA Rates And Mortgage Insurance

USDA loans allow 100% financing, meaning no downpayment is required. This is because USDA loans are insured, or backed, by the U.S. government.

Zero downpayment does not mean buyers pay higher rates. USDA loans offer similar or lower rates than can be found with FHA or conventional loans.

Mortgage insurance is also less expensive, costing about $29 per month for every $100,000 borrowed.

For a $100,000 loan balance, insurance costs $70 and conventional 97 would be around $80 per month.

USDA loans, however, have a slight disadvantage compared to Conventional 97 in that they come with an upfront fee of 1.00% of the loan amount. The fee is not required in cash at closing. Rather, the amount is wrapped into the principal balance and paid off over time.

This is the same model as applies to FHA loans, which require a 1.75% financed fee upfront.

Verify your low down payment loan eligibility

USDA Costs Compared to FHA and Conventional 97

The fact that USDA loans don’t require a downpayment saves the home buyer a substantial amount upfront. This reduces the amount of time it takes a buyer to become ready to buy a home.

Other low-downpayment options, such as FHA loans or a Conventional 97, still require a downpayment of 3.5% and 3% respectively.

On the average home price of about $250,000, a USDA borrower would need $8,750 less upfront than an FHA borrower.

USDA loans come with a higher balance, due to low downpayment, but that’s somewhat offset by lower rates and more affordable mortgage insurance.

Assuming a home price of $250,000, upfront and monthly costs of these three loan types are as stated below.


  • USDA: $0
  • FHA: $8,750
  • Conventional 97: $7,500

Loan Amount

  • USDA: $252,500
  • FHA: $245,471
  • Conventional 97: $242,500

Monthly Principal, Interest, And Mortgage Insurance

  • USDA: $1,280
  • FHA: $1,310
  • Conventional 97: $1,385

Keep in mind that these payments do not include other costs like property taxes and homeowner’s insurance, and are based on sample, and not live, rates and APRs. However, this cost example shows that USDA requires a similar monthly payment compared to FHA, without the 3.5% downpayment.

Compared to a Conventional 97, the USDA loan has a lower upfront and monthly cost.

Even though the USDA loan amount is higher due to zero downpayment, monthly payments are the same or lower than the other options.

Monthly payment is more important than principal balance for many buyers. Lower monthly costs make the USDA loan more affordable for families with tight budgets.

Verify your low down payment loan eligibility

Minimum Credit Score For A USDA Mortgage

USDA home loans have other benefits besides low initial and monthly costs. They also have flexible credit requirements compared to other loan types.

For a USDA loan, home buyers will only need a credit score of 640. Fannie Mae guidelines set the minimum credit score at 620 for a conventional 97, although lenders will typically set a higher minimum of 640 to 680.

The only popular loan program with a lower required credit score is FHA, which only requires a credit score of 580.

USDA Income Limits Ensure Availability For Moderate Earners

USDA home loans are available to buyers at or below certain income limits. This guidelines is set in place to make sure the program is used by those who need it most.

But the income limits for a USDA are generous. To be USDA eligible, the home buyer can make up to 115% of the area’s median income. Assuming a family of four, below are the annual income limits for some major areas:

  • Los Angeles area: $98,200
  • Chicago area: $87,400
  • Denver area: $94,600

Larger families are permitted to make even more. For example, a family of five or more in the Los Angeles area could make $129,600 and still be eligible.

What Are Today’s Rates?

Because USDA loans are backed by the United States Department of Agriculture, they offer benefits that other programs cannot, like small upfront costs and ultra-low rates.

The loose requirements, easy affordability and 100% financing available with a USDA mortgage make it a difficult option to beat.

Get a USDA rate quote, which comes with an property and income eligibility check. All quotes include access to your live credit scores and a personalized monthly payment estimate.

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*The payments shown above assume a 720 credit score, single family home, and property in Washington State. Conventional 97 PMI rates are provided by MGIC Ratefinder. Payments do not include property taxes, homeowner’s insurance, HOA dues or other costs, and are based on example APRs that are meant to demonstrate a comparison, not currently-available rates. Sample APRs used are as follows: USDA 4% APR; FHA 3.75% APR; Conv. 97 4.25% APR. Check with a lender here for a personalized rate and APR quote.

Tim Lucas
Authored By: Tim Lucas
The Mortgage Reports Editor
Tim Lucas spent 11 years in the mortgage industry before moving into the world of digital media. He's helped thousands of families buy and refinance real estate at banks and mortgage companies and now continues that mission through industry-leading content. Tim has been featured in national publications such as Time, U.S. News and World Report, MSN, Scotsman Guide, and more.