Government-sponsored enterprise mortgages are home loans backed by the federal government. As PocketSense explains, that backing encourages financial institutions to offer competitive terms to borrowers and helps to make home loans available to those eager to buy. The U.S. Department of Agriculture (USDA) and the U.S. Department of Veterans Affairs (VA) are among the government agencies with home loan programs, and their programs are both popular options among homebuyers. If you’re weighing the matter of a USDA vs. VA loan, how do you decide which is best?
USDA vs. VA Loan
In a matchup of USDA vs. VA loan, picking a clear winner is tough. Both loans have their advantages and disadvantages. The one that will best serve you depends on your situation and needs. Learning a bit more about the two loan programs can help you make your decision.
The USDA Loan
The USDA Single Family Housing Guaranteed Loan is also known as the Section 502 Guaranteed Loan. This loan can be used to buy, build, improve, rehabilitate, or relocate a home in an eligible rural area. It comes in just one form: a 30-year, fixed-rate loan. It’s meant to help low- and moderate-income borrowers become homeowners by offering 100-percent financing, which means that there’s no down payment required. However, there are some requirements that must be met:
- Geographic Requirements: Borrowers must choose a home that meets the program’s geographic requirements. Although the program is intended to foster growth in rural areas, the USDA’s definition of rural is notoriously broad. Both suburban and rural areas tend to qualify.
- Residency Requirements: Borrowers must agree to use the home as their primary residence.
- Income Requirements: The borrower’s income cannot exceed 115 percent of the median income for the area where the home is located.
- Citizenship Requirements: Borrowers using a USDA loan must be either U.S. citizens, U.S. non-citizen nationals, or qualified aliens.
The VA Loan
The VA loan can be used for a variety of purposes. You can buy a single-family home or a multi-unit property with up to four units. Alternately, you can buy a fixer-upper and secure the cash needed to improve it or build a home. You can also purchase a condo in a VA-approved project or opt for a manufactured home. Whatever they’re used for, VA loans come with favorable terms, including low interest rates, no mortgage insurance, and limited closing costs. Plus, borrowers can choose the type of loan that they prefer. Fixed-rate and adjustable-rate VA loans are generally available with a variety of loan terms. What about down payments? Like USDA loans, VA loans offer a chance to get a home loan with no down payment requirement. However, the other requirements for VA loans are fairly different.
- Eligibility Requirements: Eligibility for VA loans is limited to service members, veterans, National Guard and Reserve members, and others who have provided similar service.
- Financial Requirements: The VA encourages lenders to be flexible when evaluating a borrower’s finances and sets no firm requirements for credit scores or other measures. Instead, it merely states that borrowers should have sufficient credit and income for the loan that they’re requesting. However, lenders are allowed to set their own standards.
- Residency Requirements: Borrowers must plan to use the home as their primary residence.
- Property Requirements: Any property purchased with a VA loan must undergo a VA appraisal. This appraisal serves two purposes. The first is to make sure that the property is valued appropriately. The second is to ensure that it is safe, sound, and sanitary.
Could a USDA loan be the ideal tool for making your dreams of homeownership a reality? Would a VA loan offer the perfect path forward as you move toward your housing goals? Is there another option that would be a better fit for your unique situation? Why not talk to the loan experts at PrimeLending: Manhattan, Kansas, to find out? Our team offers friendly, personalized service. With a wide array of loan options to fit your needs, the expert advice to help you make confident choices, and a streamlined process that keeps things as simple as possible, we’re ready to guide you through the home loan process. Contact us today to get started.