Home ownership is a dream for many individuals. However, many people rely on government-backed programs to make the dream come true. The USDA or United States Department of Agriculture loan program is designed to help families purchase homes in smaller, rural communities. An FHA loan administered by the U.S. Department of Housing and Urban Development was formulated to make home ownership obtainable for more people. Both loans have excellent benefits, yet many differences.
USDA loans require applicants to be a United States citizen, permanent resident or qualified alien. The property must be located within a qualified rural area. This is generally defined as outside city limits with a population of less than 20,000. The residence must not be located in a flood or mudslide hazard area. Unlike the USDA, FHA loans allow non-permanent resident aliens to purchase homes, with a valid Social Security number and proof of green card. Properties can be located anywhere in the United States including flood zone areas. Flood zones require the purchase of flood insurance before acquisition.
Flexible credit guidelines are available with USDA loans. The buyer's credit history must indicate a reasonable ability to pay the monthly mortgage payment. If late payments are listed from the past, they may be overlooked if credit has been reestablished over the past 12 months. Legislation changes to FHA loans require borrowers to meet certain credit score guidelines. Applicants need a minimum credit score of 580 to purchase, and those with less than a 580 score will need to put down at least 10 percent.
Eligibility for home loans through the USDA must meet certain household income guidelines. Borrowers can use the income eligibility calculator at the USDA website for the precise amount based on the state of purchase. FHA loans are for all kinds of buyers and are not capped based on income. To prevent buyers from obtaining a home they can't afford, FHA regulations require borrowers to qualify based on certain debt-to-income ratios.
There is no loan limit on USDA loans; however, your income and debt-to-income ratios dictate how much home you can afford. FHA mortgages have limits and vary based on the region and county in which the property is located. Specific FHA loan limits can be examined at the U.S. Department of Housing and Urban Development website.
USDA loans are one of the last "no money down" programs available. No down payment is required for the purchase of a home, and closing costs can be financed into the loan. In addition, private mortgage insurance is not required. FHA loans require a minimum 3.5 percent down payment, unless your credit score falls below 580, which requires 10 percent. FHA loans don't require private mortgage insurance; instead home loans carry a government guarantee and the borrower pays a mortgage insurance premium for that guarantee.
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