FHA or USDA: who and where each fits
An FHA loan is insured by the Federal Housing Administration, part of HUD. It has no rural-area test, and FHA's borrower eligibility rules set no income ceiling. A USDA loan is made under USDA Rural Development's Section 502 Single Family Housing Guaranteed Loan Program, for a home in an area USDA has designated as rural, bought by a household whose adjusted income is at or under USDA's limit for the area. California Mortgage Solutions arranges either one for a buyer in San Luis Obispo County.
Side by side
| The rule | FHA | USDA |
|---|---|---|
| Who stands behind it | The Federal Housing Administration, part of HUD, insures the loan. An FHA-approved lender makes it. | USDA Rural Development, through its Section 502 Single Family Housing Guaranteed Loan Program. USDA issues its loan note guarantee to a lender it has approved, and if you default, USDA can reimburse the loan's holder for all or part of the loss. |
| Where the home can be | In the United States and the U.S. territories HUD lists, with no rural-area test. The exceptions include a home in the federal Coastal Barrier Resources System, or in a federally mapped flood zone where federal flood insurance is not available in the community. | Only in an area USDA has designated as rural, with exceptions when an area loses that designation, such as an application and purchase contract completed before the change. USDA's eligibility site takes a property address and shows whether it appears to be in an eligible area, and USDA makes the final determination on a complete application. USDA's rule also limits homes in a federally mapped flood zone. |
| Household income | No income ceiling in FHA's borrower eligibility rules. The lender has to determine your capacity to repay. | Your household's adjusted income has to be at or under USDA's moderate income limit for the area. It counts the income of everyone in the household, including people who will not be on the loan, with some income left out under USDA's rules. |
| Occupancy | The home you live in as your principal residence. HUD approves a second home only in narrow hardship cases, never a vacation home. An investment property is not eligible, except in cases HUD lists, such as buying a home HUD itself owns and is selling, outside the 203(k) program. | Your primary residence only. USDA will not back a loan on an investment property or on temporary, short-term housing. |
| Credit | A decision score of 580 or above for FHA's standard terms. From 500 to 579 the loan can still be insured, on more limited terms. Below 500, FHA does not insure it. A borrower with no credit score can still be eligible, underwritten by hand from other credit records. | USDA's rule asks for a verifiable credit history that shows a reasonable ability and willingness to meet your debts, backed by an acceptable credit score, a credit report and other credit qualifications USDA finds satisfactory. Without an established credit history, other methods, such as a non-traditional credit report, can show your willingness to pay. |
| Mortgage insurance and fees | FHA's own mortgage insurance: an up-front premium, which can be financed into the loan, and an annual premium. How long the annual premium lasts depends on how much equity the loan starts with, and on some loans it lasts for the life of the loan. | USDA's own fees: an up-front guarantee fee, which can be financed into the loan, and an annual fee, which USDA's rule allows for the life of the loan. Both are owed by the lender, which can pass them on to you, the annual fee as part of your monthly mortgage payment. |
| Loan size | Up to the county's FHA limit, the largest base loan FHA will insure: $1,000,500 for one unit in 2026, and higher for two to four units. A financed up-front premium sits on top of the limit, and the base loan can go above it in cases HUD lists, such as an energy efficient mortgage or a solar or wind energy system. | No county loan limit appears in USDA's rule. The rule ties the maximum loan to the home's appraised value and its purchase price. |
| The property | It has to meet HUD's minimum property requirements, that every home FHA insures be safe, sound and secure. The lender orders the appraisal from an appraiser on FHA's roster. | It has to be modest, decent, safe and sanitary. An existing home has to be structurally sound and in good repair, or put in good repair with loan funds, and the site cannot include land or buildings used mainly to earn income, or be used mainly for farming or a commercial enterprise. |
| After a Chapter 7 bankruptcy or a foreclosure | Two years from a Chapter 7 discharge. A lender can accept twelve months or more when the bankruptcy came from circumstances beyond your control and you have managed your finances responsibly since. After a foreclosure, three years from the date the property left your name, with exceptions HUD lists, among them documented circumstances beyond your control once you have reestablished good credit. | On a file underwritten by hand, a bankruptcy discharge or a completed foreclosure in the three years before you apply is an indicator of significant derogatory credit, which the lender has to review and document. The lender can weigh extenuating circumstances, such as causes beyond your control. On a file USDA's automated system accepts, USDA's requirements are built into the system. |
Where each one fits
FHA can fit when
- The home is outside the areas USDA has designated as rural. FHA has no rural-area test.
- Your household's adjusted income is above USDA's limit for the area, counting people in the household who will not be on the loan. FHA's borrower eligibility rules set no income ceiling.
USDA can fit when
- The address is in an area USDA has designated as rural. USDA's eligibility site shows whether an address appears to be in one, and USDA makes the final determination on a complete application.
- Your household's adjusted income is at or under USDA's moderate income limit for the area.
- You cannot get traditional conventional mortgage credit for the home, as USDA defines it, which USDA's rule requires of an applicant.
What the two have in common
- Both run through lenders the agency has approved, with federal backing behind the lender: FHA's mortgage insurance, or USDA's loan note guarantee.
- Both can put the cost of repairs into the loan when you buy: FHA through its 203(k) program, USDA through the repair costs its rule lets a purchase loan cover.
- Both have a route for a borrower with no credit score or no established credit history: a non-traditional credit report, or credit references the lender verifies independently.
- On a home in a federally mapped flood zone, both require flood insurance for the life of the loan.
Questions
What is the difference between an FHA loan and a USDA loan?
An FHA loan is insured by the Federal Housing Administration, part of HUD. It has no rural-area test, and FHA's borrower eligibility rules set no income ceiling. A USDA loan is made under USDA Rural Development's Section 502 Single Family Housing Guaranteed Loan Program, for a home in an area USDA has designated as rural and a household whose adjusted income is at or under USDA's limit for the area. FHA charges mortgage insurance premiums; USDA charges the lender an up-front guarantee fee and an annual fee, which the lender can pass on to you.
Does an FHA loan have an income limit like a USDA loan?
No. FHA's borrower eligibility rules set no income ceiling; the lender has to determine your capacity to repay. A USDA loan requires your household's adjusted income to be at or under USDA's moderate income limit for the area, and it counts the income of everyone in the household, including people who will not be on the loan, with some income left out under USDA's rules.
Can I use a USDA loan anywhere in San Luis Obispo County?
Only where USDA has designated the area as rural, with exceptions when an area loses that designation, such as an application and purchase contract completed before the change. USDA's eligibility site takes a property address and shows whether it appears to be in an eligible area, and USDA makes the final determination on a complete application. An FHA loan has no rural-area test.
Does a USDA loan have mortgage insurance like an FHA loan?
Each has its own federal charge under a different name. An FHA loan carries FHA's mortgage insurance: an up-front premium and an annual premium, which lasts for a period set by how much equity the loan starts with, and on some FHA loans for the life of the loan. A USDA loan carries USDA's fees instead: an up-front guarantee fee and an annual fee, owed by the lender, which can pass them on to you. USDA's rule allows the annual fee for the life of the loan.
How long after a bankruptcy or a foreclosure can I get an FHA or a USDA loan?
FHA asks two years from a Chapter 7 discharge, though a lender can accept twelve months or more when the bankruptcy came from circumstances beyond your control and you have managed your finances responsibly since. After a foreclosure, three years from the date the property left your name, with exceptions HUD lists, among them documented circumstances beyond your control once good credit is reestablished. Under USDA's rule, on a file underwritten by hand, a bankruptcy discharge or a completed foreclosure in the three years before you apply is an indicator of significant derogatory credit, which the lender has to review and document, and the lender can weigh extenuating circumstances. A Chapter 13 bankruptcy has separate rules under both.
Sources
The publications behind the rules above. Where a row says each lender decides for itself, no publication sets that rule. The figures for the county come from the county's loan limit page, with their own sources.
- HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook, last revised August 12, 2026, read October 14, 2026.
- 7 CFR Part 3555, the regulation for USDA's Single Family Housing Guaranteed Loan Program, eCFR, current as of October 9, 2026, read October 14, 2026.
- USDA Income and Property Eligibility Site, property eligibility for the Single Family Housing Guaranteed Loan Program, read October 14, 2026.
- HUD FHA mortgage limits, San Luis Obispo County, read October 13, 2026.
Keep reading:Every loan, comparedThe county's loan limits
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