Differences Between VA, FHA, and USDA Mortgages

February 18, 2024

There are three important government-backed mortgage loan options borrowers can choose from when comparing home loans. Many people are new to these programs and their nuances at first, here’s what you need to know as a first-time home buyer reviewing these loans.

Basic Similarities Between FHA, VA, and USDA Home Loans

How do these loan programs compare? For a start, all three provide federal government guarantees to the lender. That makes it possible for the lender to offer lower-risk mortgages to those with lower FICO scores or who have issues that make it harder to qualify for a conventional mortgage.

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

VA mortgages are only for those with qualifying military or uniformed service. USDA loans are typically approved for those with financial need, and both VA and USDA home loans come with zero-down payment options depending on the loan and borrower circumstances.

FHA mortgage loans are for any financially qualified borrower, and there is a low down payment requirement.

FHA Mortgages vs. VA Home Loans

Neither VA or FHA mortgages are need-based, and they do not feature income limits or purchase price restrictions.

VA loans have no loan limits for those with full VA mortgage entitlement. FHA mortgages have annual loan limits for housing markets in the U.S.

VA loans have a no down payment option. FHA borrowers can get down payment assistance from state or local agencies, which, where applicable, could result in a situation close to a no-out-of-pocket down payment.

FHA Mortgages vs. USDA Home Loans

USDA loans may feature a no down payment option, but being need-based mortgages borrowers must qualify with both FICO scores and other financials and meet maximum income guidelines. 
Some assume wrongly that FHA loans are also need-based and that income limits apply This is untrue.

FHA loans allow the purchase of a home with up to four living units.
 
Borrowers can rent out the unused living units in the home purchased with an FHA mortgage. For those buying under the USDA program, you may find there is a prohibition on “income-producing property,” and a multi-unit single-family home may fall into that category.

For best results, ask a participating lender to show you these options side-by-side in terms of cost to the borrower, benefits, and restrictions.

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