If you're purchasing a rural home and need financing, you might face a choice: USDA loan vs. conventional loan. While both loan options serve the same purpose, they have differences in eligibility requirements, terms, and benefits.
Let's explore and compare both loan types so you know what's right for you!
What is a USDA Loan?
A USDA loan (from the U.S. Department of Agriculture) is a government-backed loan for low-to-moderate-income rural borrowers. To qualify for a USDA loan, your property must be in an eligible rural area. As defined by the USDA, these areas typically have a population of less than 35,000 residents.
What is a Conventional Loan?
Conventional loans are a popular option among buyers. These loans are often used in more traditional neighborhoods for properties that do not require any special financing programs. Instead of government backing, conventional loans are provided by independent financial institutions, such as banks and credit unions.

5 Differences Between USDA Loans and Conventional Loans
With those explanations out of the way, let's see how USDA and conventional loans compare in five crucial areas.
Eligibility
As mentioned above, USDA loans are only available to those who meet a specific income, location requirement, and intended property usage. Though the USDA prefers a credit score of 620 or above, they don't have a limit, so applicants with less-than-ideal credit scores can still apply.
Conventional loans, on the other hand, have broader eligibility in terms of location and are available to all borrowers who meet the lender's criteria, which can vary based on the bank. Typically, conventional loan eligibility depends on credit score, income stability, and debt-to-income ratio.
Down Payment
USDA loans require no down payment, while conventional loans require a minimum of 3% but more often 20%, depending on the lender's requirements. As a result, buyers who opt for a conventional loan may need more cash on hand to make their down payment compared to those who qualify for government-backed loans.
Mortgage Insurance
USDA loans usually require mortgage insurance premiums, or "MIP." On the other hand, conventional loans may require private mortgage insurance (PMI) if the borrower puts down less than 20% of the property's purchase price. It's worth noting that while you can cancel PMI once you pay off a certain amount of the loan, that is not the case for MIP on USDA loans. MIP generally lasts for the duration of a loan.
Interest Rates
Because they're backed directly by the government, USDA mortgages can often offer competitive interest rates. After all, a borrower's creditworthiness, market conditions, and the lender all impact the interest rate offered on a conventional loan. However, USDA loans don't always have lower interest rates than traditional loans, so researching and talking to an experienced loan officer in your area is essential.
Loan Limits and Terms
USDA loans have specific loan limits based on the property location and family size. The loan terms are often for 33- or 38-year periods.
On the other hand, conventional mortgage loans have higher limits, which vary by county. Despite the larger down payment, conventional loans may offer borrowers more flexibility in loan amount and repayment terms (such as 15- or 30-year mortgages), making them an excellent option for those with good credit and income stability.

Make Homeownership a Reality
Choosing the proper loan type depends on various factors, such as where you want to live, how much money you have saved, and the kind of house you wish to buy.
Since requirements vary based on location and lender, making an informed decision often takes more research. That's where we come in—before deciding anything, talk to a mortgage expert who can offer advice based on your area and finances.
If you're ready for more information, visit our website and fill out the "Get Started" form, or click here to contact our mortgage professionals directly. We're excited to help make your dream of owning a home a reality!
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