We previously learned of the difference between USDA loans and FHA loans. Now, let’s try to compare USDA loans with another government-backed mortgage program, VA loans.
How do USDA and VA loans compare in terms of down payment, credit score and other loan features? Which is the better government mortgage to purchase a property? These things and more will be discussed as follows. Follow this link to find a lender.
USDA and VA Loans: An Introduction
The U.S. Department of Agriculture Rural Development insures home loans to finance properties in eligible rural areas throughout the U.S. These guaranteed loans are made to buyers with low and moderate income so they can own a decent, adequate and safe home.
On the other hand, the U.S. Department of Veterans Affairs guarantees home loans for eligible veterans, service members and/or their heirs. VA loans enable veterans to own and adapt homes according to their needs.
Both Departments do not make the loan themselves; they designate lenders to originate and approve the loans based on the program’s eligibility guidelines.
A Comparison Between USDA and VA Loans
To help you weigh which is the better option, look into what each program requires for you to become eligible.
1. Down payment: USDA loans are offered with zero down payments. The USDA provides a 90% note guarantee to lenders to cover the risk of making 100% financing loans. VA loans are not to be beaten either. They are also zero-down purchase loans.
2. Credit: As of December 2014, the USDA set a minimum credit score of 640. But this score is for automated loans, meaning credit scores that may be manually underwritten can be as low as 600.
The VA does not set a minimum credit score. However, lenders have their own credit standards with 620 as the average asking score. It’s best to ask lenders directly here.
3. Rates: Rates will depend primarily on your credit score. The way they stand, USDA and VA loans are competitively priced so you can expect rates to be lower than that of FHA or conventional loans.
4. Income: To become eligible for a USDA loan, you must meet the income limits as adjusted per household per county. For VA loans, the VA requires that you have sufficient income to support your mortgage payment.
5. Occupancy: Both loan types require that the borrower occupy the home as a primary or main residence.
6. Purposes: Aside from buying a home, guaranteed loans from USDA can be used to build, rehabilitate, or improve a dwelling in an eligible rural area. Same goes for VA-backed loans that are used to buy single-family homes, build a manufactured home, and refinance an existing mortgage.
7. Mortgage Insurance: Like FHA loans, USDA loans have a mortgage insurance. When you take out a USDA loan, you make upfront and annual mortgage insurance payments. You can roll your upfront mortgage insurance premium into your mortgage.
As for VA loans, the VA guarantee serves to replace the mortgage insurance. While there are no monthly mortgage insurance premiums on VA loans, the VA requires a funding fee that can be waived if you have a service-connected disability.
No contest. USDA and VA loans have more forgiving guidelines, catering to underserved segments of the U.S. housing market. You can always inquire about either loan, here.Click to See the Latest Mortgage Rates»