That is truly a quandry !
First off i suggest you ask lender #2 about the $8,500 closing costs. That to me seems high.
i suspect they added the down payment into the total to give you the $8,500.
That being the case both loans would probably be around the $4,500 mark or so.
Thus all things being equal ... I tend to like FHA. USDA can be troublesome depending
upon the county and the property you buy ... i.e. the home may need more repair than for FHA and may not even qualify after the appraisal is completed. Besides the Seller will have to pay some of the closing costs with FHA .. and should make your costs a bit less.
Douglas M. Bragg, Broker
Coldwell, Banker Seal