Choosing between a VA and a USDA loan can be a challenging decision. Both loans are federal government programs and have similar benefits that can help you afford a new home, so ultimately, it’s going to come down to eligibility requirements. In this blog, we’ll explore how these two loans stack up against each other so you can choose an option that suits your needs.
What is a USDA Loan?
USDA Loans are a type of financing guaranteed by the U.S. Department of Agriculture, making it easier for homeowners who don’t meet the requirements of conventional loans. These loans are designed to assist low to moderate-income homebuyers with lower credit to purchase rural homes (population of less than 35,000).
What is a VA Loan?
A VA loan is a home loan guaranteed by the U.S. Department of Veterans Affairs (VA), which means that to be eligible, homebuyers must be active service members, veterans, or surviving spouses.
Because the government backs these loans, they have lower interest rates and more flexible requirements.
USDA vs. VA Loan at a Glance
Both loans offer some significant benefits, and you may be better suited to one depending on your circumstances.
Income
To qualify for a USDA loan, your income can’t be more than 115% of the average income in your area. Lenders will also want evidence that you can repay mortgage financing, so you’ll need to submit things like W-2 forms, pay stubs, and tax returns.
USDA lenders will also take a look at your repayment income and allow as much as 29% of your gross monthly income to go towards mortgage repayments and property taxes.
The VA loan, on the other hand, has no income limits, so borrowers of any income level can be eligible.
Location
USDA loans require that the home be in a USDA-designated rural or suburban area, while there are no geographic restrictions for VA loans.
Downpayment
Neither loan options require a down payment, but the USDA loan does require borrowers to take out mortgage insurance in the form of an annual fee.
Credit requirements
The USDA has a minimum credit score requirement of 640, while the VA loan requires a minimum credit score of 620.
Eligibility
USDA loans are available to the general public, as long as applicants meet the income and location requirements. VA loans are available to active-duty service members, veterans, members of the National Guard and reserves, and surviving spouses.
VA Loans: Pros and Cons
VA loans pros include:
- Flexible credit score requirements
- Lower interest rates
- No private mortgage insurance
- No downpayment
Cons:
- Only available to use for primary residence
- The funding fee can be high
USDA Loans: Pros and Cons
Pros:
- No down payment
- Flexible credit and debt-to-income ratio requirements
- Lower mortgage rates
Cons:
- Properties are limited to approved areas
- Income is limited to the area’s average
- Guarantee and annual fees must be paid
Purchase Your Home With a Home Loan in California
Get a competitive home loan that meets your needs with Granite West Funding and make your dream of homeownership come true. Give us a call at (559) 540-2275 to schedule your free consultation.
