FHA, VA and USDA: who each is for

The short version

The FHA, VA and USDA loans I place are made by private lenders, and a federal agency stands behind each one through insurance or a guarantee. Each program was built with a particular kind of borrower in mind. Each agency publishes its own limits and fees, and lenders can add requirements of their own.

I place all three in Georgia and Florida. Here's what each was designed for, and a common misunderstanding about each.

FHA

FHA loans are insured by the Federal Housing Administration, which is part of HUD. They're for a home the borrower will live in, and they're generally more flexible on credit history than conventional loans. FHA allows gift funds and, in some cases, a family member who won't live in the home as a co-borrower.

A common belief is that FHA is only for first-time buyers. It isn't. It's for a home the borrower will live in, first home or not.

FHA's mortgage insurance comes in two parts: an upfront premium, usually added to the loan, and an annual premium paid monthly. The annual premium lasts a set period or the life of the loan, depending on the starting down payment.

HUD sets FHA's requirements and its loan limits, which it publishes county by county and updates each year. HUD's own pages have the current figures, and each lender can set requirements of its own.

VA

VA loans are guaranteed in part by the Department of Veterans Affairs. The program was built for veterans, service members and some surviving spouses, and it starts with a Certificate of Eligibility from VA.

There's no monthly mortgage insurance. Instead there's a one-time funding fee, which can be added to the loan. The fee depends on the kind of loan, the down payment, and whether the VA home loan benefit has been used before. It's waived for veterans receiving VA disability compensation and some others. VA publishes the current chart and who's exempt.

A common belief is that the VA benefit is once in a lifetime. It isn't. Entitlement can be restored after a VA loan is paid off, and in some cases a second VA loan is possible while the first is still open.

VA loans are also generally assumable, with the servicer's approval of the buyer. When a VA loan is assumed, the seller's entitlement generally stays tied to it unless the buyer is an eligible veteran who substitutes their own entitlement.

USDA

The USDA loans that lenders make come from USDA Rural Development's guaranteed program: a private lender makes the loan, and USDA guarantees it. USDA also lends directly through its own offices, which is a separate program applied for with USDA itself.

Two of USDA's tests set it apart. The address has to be in an eligible area, and household income has to be at or below the limit for the county, generally counting every adult in the home. Income limits differ by program. It's for a home the borrower will live in.

There's an upfront guarantee fee, which can be financed, and an annual fee paid monthly for the life of the loan.

A common belief is that rural means farmland. Many outer-suburb addresses are in eligible areas, and USDA's map is the answer, not a guess.

Which one fits

Which program fits a particular purchase depends on the home, the household and the lender's review. That's something to go through with real details rather than a chart.

Where the current figures live

Each program's limits and fees change, and many are updated every year, so I don't repeat them here. These are the agencies' own pages. They show the current figures, and they don't recommend any lender or broker, including me.

• HUD: FHA loans
• HUD: FHA loan limits by county
• VA: funding fee and closing costs
• VA: eligibility and the Certificate of Eligibility
• USDA: address and income eligibility

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