February 13, 2024
There are three important government-backed mortgage loan options. They are FHA loans, VA mortgages, and USDA home loans. If you are new to these mortgage programs here are some basic facts about what to know when comparing these home loans.
Basic Similarities Between FHA, VA, and USDA Home Loans
How do these loans stack up to one another? These loans offer the lender federal government guarantees, reducing the risk to the bank and allowing the lender to offer lower-risk mortgages to customers with lower FICO scores or with other issues making it harder to qualify for a conventional loan.
These loans also feature lower down payment requirements than some conventional lenders offer consumer benefits such as restrictions on your closing costs and what fees the lender is permitted to include.
Basic Differences Between Government-Backed Mortgages
VA mortgages are approved for borrowers with qualifying military or uniformed service. They are not offered to the general public.
USDA loans are home loans for those with a financial need. VA and USDA home loans have zero-down payment options that may be applicable depending on the loan and other variables.
FHA mortgage loans are for any financially qualified borrower, and there is a low down payment requirement.
FHA Mortgages Versus VA Mortgage Options
Neither VA or FHA mortgages are need-based, there are no feature income limits or purchase price restrictions.
VA loans have no loan limits for those with full VA mortgage entitlement which means the decision for how much loan to offer comes from the lender alone.
FHA mortgages have annual loan limits. For both FHA and VA mortgages, there is a jumbo loan option in cases where the loan isn’t enough to meet the asking price. Jumbo loans are handled on a case-by-case basis by the lender.
VA loans have a no down payment option. FHA borrowers must pay 3.5% down at a minimum but may qualify for down payment assistance from state or local agencies. The FHA itself does not offer this type of assistance.
FHA Compared To USDA Home Loans
Like the VA loan program, USDA loans may have no down payment option. Borrowers excited about this should remember that USDA mortgages are need-based, and qualifying means doing so using FICO scores and other financials but also USDA maximum income guidelines.
Some believe (erroneously) that FHA loan rules include similar need-based guidelines. But this is not true of FHA mortgages.
FHA loans allow the purchase of a home between one and four units with the same low downpayment requirement minimums.
Borrowers who purchase with an FHA mortgage are permitted to rent unused living units in their new home. This is not necessarily true with homes purchased under the USDA program.
That option includes rules against what USDA calls income-producing property. A home with more than one living unit may qualify under that category.
When comparing home loan options, consider asking a participating FHA lender to show you these options side-by-side regarding cost to the borrower, benefits, and restrictions.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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