Yes! True, according to the USDA rulebook, Borrowers can be ‘able’ to get FHA (or VA) financing, but if they have 20% down for an UNINSURED Conventional loan, they’ve apparently got no business applying for USDA :). Here’s the exact verbiage from the USDA rulebook. (Remember these types of loans were brought in to assist ‘moderate income’ families who didn’t have sufficient cash for a downpayment.
“The borrower must not have sufficient assets to obtain other traditional conventional financing. The borrower may, however,
qualify for an FHA or VA loan. In other words, applicants may have liquid assets and be eligible to participate in the GRH Program. Those assets, however, should not be sufficient to meet the down payment and closing cost requirements associated with a conventional uninsured mortgage product (LTV 80%). This means applicants do have a choice of USDA-Guaranteed Rural Housing, FHA, VA, or a conventional mortgage product with private mortgage insurance.”