A Comparison of 5 Loan Programs

VA, FHA, USDA—what do all of these loan acronyms actually mean? And how are these loan programs any different than conventional loans? These loans have some seriously great perks if you qualify for them, so they’re worth learning more about. Here’s how these five loan programs stack up (and what you might be missing out on).

FHA

FHA loans are government-backed loans that help people with low equity or low credit buy their own homes. Basically, the government insures the loan so that the lender can give you better terms. FHA loans have lower down payment requirements, lower closing costs, and easier credit qualification than conventional loans do.

Credit Score: 620 minimum

Debt-to-Income (DTI): The FHA uses two DTI calculations. One measures how much of your monthly income is going to your mortgage, and the other measures how much of your income is going to all of your debt. Your credit score, cash reserves, and residual income affect the maximum DTI you’re allowed with an FHA loan.

Down Payment: FHA borrowers have to put at least 3.5% down.

Loan Limits: There are limits on how expensive a loan the government will insure. They vary depending on what part of the country you live in. See FHA loan limits here.

Special Fees: Most FHA borrowers will pay an upfront mortgage insurance premium of 1.75%. They’ll also pay a monthly mortgage insurance premium of .85% for most loans. This fee is applicable for the life of the loan.

VA

VA loans are a great military benefit (available to most people who have served, and sometimes surviving spouses). Like FHA loans, VA loans are government-backed loans that get you some great repayment terms. They have limited closing costs, lenient credit qualification, and no down payment.

Credit score: There’s no official minimum, but most lenders stick to the 620 mark.

Debt-to-Income (DTI): Your mortgage plus all of your other debt payments can’t exceed 41% of your total income.

Down Payment: You can get a VA loan with no down payment whatsoever, which is one of this loan’s biggest perks.

Loan Limits: There are limits on how expensive a loan the government will insure. They vary depending on what part of the country you live in. See VA loan limits here.

Special Fees: VA loans come with a funding fee, which varies depending on your military service and whether or not it’s your first time using the VA loan benefit.

USDA

The USDA (United States Department of Agriculture) helps get people with low and moderate income into safe, sanitary homes in eligible rural areas. This loan program is similar to the FHA and VA loan programs because it’s a government-backed loan program.

Credit Score: 620 minimum to receive streamlined processing. 580 or below must meet more stringent underwriting standards.

Income Limits: The USDA has extensive income limits for these loans, and they vary depending on the part of the country you’re in. See the complete numbers here. These numbers can be complicated, so you may want to sit down with us to determine whether or not your adjusted gross income qualifies for a USDA loan.

Debt-to-Income (DTI): Your monthly mortgage payment (including the principal, taxes, interest, and insurance) must be 29% or less of your monthly income. Your mortgage plus all your other debt payments can’t exceed 41% of your total income (unless you have a credit score above 660).

Down Payment: There is no down payment required, and mortgage insurance requirements are very low.

Loan Limits: Again, it depends on the area of the country you’re in. $216,840 is typical in many parts of the country, but it can be as low as around $100,000 and as high as $417,000. Limits are a maximum of 115% of the median income in your area. See a limits map here. You may borrow up to 103.5% of the home’s appraised value.
 

Oregon Bond

The Oregon Bond program helps qualified first-time home buyers finance home purchases below the going market rate. It has two great options to choose from. The RateAdvantage Home Loan offers below-market interest rates, giving you great savings throughout the life of the loan. The CashAdvantage Home Loan has slightly higher but still very good rates—and you can get up to 3% of the loan for closing costs, and that money doesn’t have to be repaid.

Credit Score: Credit score minimums follow the guidelines of the loan type you’re getting: conventional, USDA, or FHA.

Income Limits: There are income limits that vary depending on county. Those can be found here.

Debt-to-Income (DTI): DTI requirements follow the guidelines of the loan type you’re getting: conventional, USDA, or FHA.

Down Payment: If you get the CashAdvantage Home Loan, you get up to 3% in cash assistance toward closing costs. These funds are a gift and do not have to be repaid.

Loan Limits: Loan limits are found here. There are higher limits if the property being purchased is in a targeted area.

Conventional

Conventional loans can have their own perks—great interest rates, low down payment requirements, or no restrictions on income. A conventional loan may be the best choice for your situation, especially if you’re buying a home that costs more than the limits on these other loan types.

Credit Score: 620 minimum.

Debt-to-income (DTI): 43 to 45%.

Down Payment: At least 3% down.

Figuring out which loan type is best for you can be difficult. There are a lot of complicated calculations that can affect what you choose to do. If you need any help, feel free to give us a call! I have a great team, and we’ll do whatever we can to help you out.

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Thank you for the lovely complete information that will be helpful to so many! Hope you are doing well!!

Thanks for your comment, Tom!

Good info. Easy to understand and pass on to Buyers. Thank you.