Should You Get a USDA Loan or a VA Loan? Comparison: Pros & Cons of Each

Posted by Lauren Schneider on Monday, June 1st, 2020 at 8:49am.

USDA or VA Loan Options for Home Buyers: Which One?Any home buyer who is taking out a mortgage must decide for themselves what type of mortgage is right for them. FHA mortgages and conventional mortgages are very popular, but for homeowners who qualify, USDA loans and VA loans may be the better option. Both loans have low interest rates and are excellent options for a home buyer on a budget. If you qualify for both types of loans, knowing the difference between them can help you decide which one is right for you.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

What Is a USDA Loan?

USDA loans are issued through the US Department of Agriculture. These loans can only be obtained through lenders who are approved by the USDA to administer this type of loan. USDA loans require zero money down, have very low interest rates and are issued to borrowers who would like to purchase or repair a home in a qualifying area (rural and suburban).

USDA loans require the borrower to pay mortgage insurance if they've put little or no money down. Mortgage insurance premiums add to the mortgage payment every month. Applicants with credit scores over 640 enjoy streamlined processing, but applicants with credit scores below 640 may need to meet stringent requirements and will have their application more carefully reviewed.

What Is a VA Loan?

VA loans are loans issued through the US Department of Veterans Affairs. VA loans require no money down, have low interest rates, and are available to borrowers for homes in any location, provided that the borrower is either active duty, a veteran or in another qualifying group. Like USDA loans, VA loans are available to applicants of varying credit.

VA loans stand out compared to USDA loans in two ways:

  • VA loans can be used to buy a home in urban areas, whereas USDA loans are only available in limited locations.
  • VA loans require no payment of mortgage insurance.

Which Is Better for You?

The best way for a homeowner to decide which type of loan is right for them is to talk through both loans, including the payment and other loan terms, with their lender. A good lender will be able to help a home buyer understand their options. While VA loans have advantages, the only way to decide for sure which type of loan is best is to have these conversations with a lender.

How Can You Get Started with Your Loan?

To get started with a loan, the home buyer must contact a lender. The lender will walk the buyer through the process of getting pre-qualified and then pre-approved. To get pre-qualified and pre-approved, the buyer must answer questions, agree to a credit check, and present documentation to demonstrate their financial status.

Borrowers can learn about the various types of loans available by calling around to different lenders. Although multiple lenders may offer the same types of loans, each lender will have different interest rates and loan terms, which may make one more desirable than the others.

Work with a Real Estate Professional

As you try to decide which type of loan is right for your needs, work with your real estate professional. Your real estate agent can help you look at houses and decide which homes fit in your budget. When the time comes to negotiate a price, your real estate professional can help you get a price you can afford. Whether you get a VA loan or a USDA loan, it's critically important to get the right price for your house, so contact a real estate professional today.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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