FHA, VA, and USDA loans: home loans for buyers with less saved
Think you need 20% down to buy a home? Three government-backed loan programs may change your mind. FHA, VA, and USDA loans are designed for buyers with less in savings, as well as those with lower credit scores or modest incomes.
Key takeaways
- FHA loans need as little as 3.5% down, and you can apply with a credit score as low as 580.
- VA loans offer 0% down and no monthly mortgage insurance for eligible service members and veterans.
- USDA loans offer 0% down in eligible rural and suburban areas for moderate-income buyers.
- All three charge some kind of upfront fee, which can usually be added to the loan.
These aren’t really “government loans”, despite the names. You get them from regular lenders, like credit unions and mortgage companies. The government backs them, which makes lenders more willing to say yes to buyers they might otherwise decline.
FHA loans
The Federal Housing Administration insures FHA loans (part of HUD). They're the most common choice for first-time buyers with lower credit scores.
- Down payment: 3.5% with a credit score of 580 or higher, 10% with a score between 500 and 579, and the money can be a gift from family.
- Mortgage insurance: You'll pay an upfront premium of 1.75% of the loan (usually added to your balance). You'll also pay an annual premium, split into monthly payments (most borrowers pay 0.55% a year). If you put down less than 10%, this lasts for the life of the loan unless you refinance later.
- Loan limits: FHA loans can go up to $541,287 for a single-family home in most areas, and higher in expensive markets (this gets adjusted regularly, so check the current year’s limits).
- Good to know: The home has to be your main residence and pass an FHA appraisal, which checks for basic safety and condition.
VA loans
The Department of Veterans Affairs backs VA loans, and they’re one of the best mortgage deals available (if you qualify).
- Who's eligible: Many active-duty service members, veterans, National Guard and Reserve members, and some surviving spouses. You'll need a Certificate of Eligibility, which your lender can often request for you.
- Down payment: None required.
- Mortgage insurance: None. That alone can save you more than $100 a month compared with other loans.
- Funding fee: Most first-time VA borrowers putting down less than 5% pay a one-time fee of 2.15% of the loan. It drops with a larger down payment. Veterans who receive VA disability compensation don't pay it at all.
- Good to know: The VA doesn't set a minimum credit score, but most lenders look for about 620.
USDA loans
The Department of Agriculture backs USDA loans. Despite the name, you don't have to buy a farm. Many small towns and suburbs qualify.
- Who's eligible: Buyers with moderate incomes buying in an eligible area. Income limits depend on where you live and how many people are in your household (in most areas, the limit’s $122,800 a year for a household of up to four).
- Down payment: None required.
- Fees: An upfront guarantee fee of 1% of the loan, which can be added to the balance, plus an annual fee of 0.35%, paid monthly.
- Good to know: You can check whether an address qualifies with the USDA's property eligibility map online. Buyers with very low incomes may also qualify for USDA direct loans, which can include help with monthly payments.
Side by side
| FHA | VA | USDA | |
|---|---|---|---|
| Minimum down | 3.5% | 0% | 0% |
| Who can use it | Most buyers | Eligible military and veterans | Moderate-income buyers in eligible areas |
| Upfront fee | 1.75% | 2.15% for most first-time users | 1% |
| Monthly insurance or fee | Yes | No | Yes |
How to choose
If you're eligible for a VA loan, start there, because it's hard to beat. If you're buying outside a big city and your income fits, look at USDA next. FHA is the most flexible option for everyone else, especially if your credit score is under 620.
Ask lenders to compare these with a conventional loan, too. If your score is decent, a conventional loan with 3% down might cost less over time.
What this is
Why it matters
What it means for you
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Sources
Related FAQs
Common questions about this topic, answered simply.
Can I use these loans for a second home or rental?
No, FHA, VA, and USDA loans are for homes you'll live in as your main residence.
Can I combine these loans with down payment assistance?
In most cases, yes. Many assistance programs are designed to work alongside FHA, VA, and USDA loans.
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