Are you looking to buy a home and are confused as to which loan option would be better for you? Most of the people buying a house for the first time finance their houses by either taking an FHA home loan or a USDA loan. These are the two major home loan options available in the country and both the programs are governed by the federal government. But the biggest problem that most buyers face is—which one to choose between USDA and FHA home loans.
While the USDA and FHA home loans are quite similar, they also have a lot of differences that you will have to consider before deciding on a particular loan. In this section, we’ll discuss those differences that might help you choose the right loan option for yourself.
USDA Loans – USDA vs. FHA Home Loan
All the areas in the country do not qualify for a USDA loan, but wherever it is available, it provides you with 100% financing. The USDA loans are very popular among the first time homebuyers due to the fact that they do not have to give any kind of down payment. The other major benefit of acquiring this loan is that you do not have to give monthly mortgage insurance. These loans are provided to people having low to moderate income, so that they can easily afford to buy their own household.
Though it is easy to qualify for this type of loan, you need to fulfil various criteria. Your household income should not exceed the area’s median income by 115%, your property should be located in a USDA designated rural area, and the house should meet the exacting standards of the USDA. The Guaranteed Housing Loan program is the main program of USDA in which you can include allowable repairs, lenders fees, and closing costs into the loan up to house’s value. In the USDA loans, you will have to give a reservation fee of 3.5%, which increases the amount of loan to 103.5%.
FHA Loans – USDA vs. FHA Home Loan
The Federal Housing Administration (FHA) Loan is another loan option which is extremely popular among the people buying a home for the first time. If you have extra debt and little money in hand, then an FHA loan is just perfect for you. The FHA loans are lenient with the credit history and allow you to take a loan of up to 96.5% of the appraised value. These loans have low rates of interest with no limit on income, so people having high household income can also acquire this loan. Furthermore, these loans do not have any geographic limitations, thus enabling you to buy a house in any part of the country.
These loans were started by the federal government to make mortgage financing easily available for people who can afford to pay a small amount for down payment. You need to make monthly payments of annual and upfront loan insurance premium, which increases your overall costs. The upfront amount can be included in the loan amount to reduce the amount of money required at the time of closing.
Choosing between USDA vs. FHA home loan can be tricky. We hope that the above information gave you a good insight about the two mortgage loans. To know more about these loan options and to determine which mortgage loan will be perfect for you, call us and talk to our loan specialists today!