VA Loans vs USDA Loans
Veteran homebuyers often times choose to use the VA home loan benefit to purchase a home because of the zero down payment requirements. Some may not be aware of another option out there that’s available to non-veteran buyers that offer 100% financing as well.
USDA Loans are designed to offer benefits to those in rural and suburban areas that wish to purchase a home.
Which loan is best for you? This article will take an in-depth look at the differences between VA and USDA loans.
Let’s take a closer look at how the two programs match up.
Both the VA and USDA loan programs are U.S. government-sponsored programs. The VA loan is sponsored by the Veterans Administration and the USDA is sponsored by the United States Department of Agriculture.
The USDA home loan is a zero down payment program that’s designed to help low-income families make homeownership possible.
As far as eligibility is concerned, it can sometimes be confusing when you are looking for a home, especially when determining if you’re in an eligible area. The USDA loan option, for example, has
There are millions of veterans and active service members that have earned VA home loan benefits because of their service. However, the VA makes the final call when determining eligibility.
Below is a table that compares the VA Loan and USDA loan eligibility requirements.
| VA Loan Eligibility | USDA Loan Eligibility |
|---|---|
| Must be an eligible veteran, active service member, National Guard members/reservists, or a surviving spouse of a service member. | Must be a U.S. Citizen or Permanent Residency. |
| Credit Score of 620, but will vary by lender. | Credit Score of 640, but will vary by lender. |
| - | At least 2 years of employment. |
| - | Adjusted household income is equal to or less than 115% of the area median income. |
| - | Must have dependable income. |
VA loans do not have PMI or any monthly charges. The VA guarantee serves as the mortgage insurance for the VA loan. This insurance is known as the VA funding fee. This one-time fee covers any losses that the VA may incur and helps keep the program running for future military buyers.
USDA loan mortgage insurance is an upfront mortgage insurance premium that gets added to your loan amount and is paid in two fees (upfront guarantee fee, and the annual fee). The upfront guarantee fee is 1% of the loan amount. There is also an annual fee that’s 0.35% of the loan amount.
The maximum VA loan amount for loans in most locations is $766,550. The maximum loan amount can be increased to $1,149,825 for high-cost counties. If you’re unsure what your maximum loan limit is for your county, be sure to double-check. This loan amount represents the maximum amount that an eligible veteran can borrow before having to make a down payment.
There is no maximum loan amount for USDA loans. The maximum loan amount is calculated based on the applicant’s income qualifications.
VA loans don’t necessarily have an income limit for qualifying VA loan borrowers. The debt-to-income ratio is the determining factor that is used to measure a borrowers' ability to repay a loan.
The general DTI limit for a VA loan is generally 41%, but this may be exceeded depending on the lender.
USDA loans do have income limits in place dependent upon the borrower's household income. The base USDA income limits are $110,650 for a 1-4 member household, and $146,050 for a 5-8 member household.
While each situation is different if you are a Veteran or active-duty service member, a VA loan may be the best option for you since it is more flexible and doesn't have any income restrictions. On the other hand, if you qualify for low to moderate income and don't qualify for a VA loan, you may want to try a USDA loan.
