Government-backed mortgages are a popular home financing option for all types of borrower. Each type is guaranteed by a different government agency and funded through private lenders. They’re designed to help those who might not otherwise get approved for conventional loans gain access to affordable home financing. USDA and FHA loans are two of the most popular government-backed options given their ease of qualification. Read on in this week’s blog to learn more about USDA vs. FHA loans and how they apply to borrowers in La Cañada Flintridge, CA.
USDA and FHA Loan Basics
When you compare USDA vs. FHA loans, you’ll find there are pros and cons to both options; however, one may be better suited to your unique needs. Each has different qualifying requirements and benefits to consider.
USDA loans are insured by the U.S. Department of Agriculture. The USDA actually provides several different loan and grant programs for rural development, but the one we’ll be discussing this week is known as the Single Family Housing Guaranteed Loan Program. These loans make it possible for low- and moderate-income borrowers afford safe, modest housing in certain USDA-designated rural and suburban areas.
FHA-guaranteed loans were first created to help struggling families afford safe, affordable housing as well. They’re the most popular type of nonconventional home financing because of their relaxed approval requirements and low down payment requirements. First time home-buyers often favor FHA loans over the many other options available.
There are a few key differences to consider when it comes to USDA vs. FHA loans:
- FHA-backed loans have no maximum income limitations, while USDA loans are only available to people who make up to 115% of the adjusted median income (AMI) in a given area.
- The FHA sets maximum loan limits, while the USDA does not. The FHA loan limits in La Cañada Flintridge, CA range from $ 726,525 for a single-unit home to $ 1,397,400 for a four-unit home. It’s important to note that, while the USDA doesn’t set a loan maximum, applicants must show proof of income and will only get approved for loans they can afford.
- USDA loans provide 100% financing, which means 0% down payment for eligible applicants. FHA loans, however, have 3.5% down payment requirement with a 500-579 credit score or a 10% down payment requirement with a 580 or higher score.
- When it comes to mortgage insurance, both government-backed loans require monthly mortgage insurance premium payments. USDA vs. FHA Loans: What’s Similar?
If you choose a USDA or FHA loan, the home you purchase must be used as your primary residence. This means neither is a good option for a vacation or second home. Both loans are only available to qualifying U.S. citizens, non-citizen nationals and Qualified Aliens. Lastly, both nonconventional loans are funded by government-approved private lenders, who ultimately will determine which applicants are approved.
What Matters is What’s Right for You
Interested in learning more about these great nonconventional loan solutions? The team at Calstar Mortgage Inc. would love to help you explore your options. We offer prequalification to determine if you’re eligible and can give you a free quote, so you can compare loans. If you plan to purchase in La Cañada Flintridge, CA, contact us to talk about USDA vs. FHA loans today.