There are three important government-backed mortgage loan options borrowers can choose from when comparing home loans. Many people are new to these programs and their nuances at first, here’s what you need to know as a first-time homebuyer reviewing these loans.

Basic Similarities Between FHA, VA, and USDA Home Loans

How do these loan programs compare? For a start, all three provide federal government guarantees to the lender. That makes it possible for the lender to offer lower-risk mortgages to those with lower FICO scores or who have issues that make it harder to qualify for a conventional mortgage.

These loans also feature lower down payment requirements than some conventional lenders offer consumer benefits such as restrictions on your closing costs and what fees the lender is permitted to include.

Basic Differences

VA mortgages are only for those with qualifying military or uniformed service.

USDA loans are typically approved for those with financial need.

VA and USDA home loans come with zero-down payment options depending on the loan and borrower circumstances.

FHA mortgage loans are for any financially qualified borrower, and there is a low down payment requirement.

FHA Mortgages vs. VA Home Loans

Neither VA or FHA mortgages are need-based, and they do not feature income limits or purchase price restrictions.

VA loans have no loan limits for those with full VA mortgage entitlement. FHA mortgages have annual loan limits for housing markets in the U.S.

VA loans have a no down payment option.

FHA borrowers can get down payment assistance from state or local agencies, which, where applicable, could result in a situation close to a no-out-of-pocket down payment.

FHA Mortgages vs. USDA Home Loans

USDA loans may feature a no down payment option, but being need-based mortgages borrowers must qualify with both FICO scores and other financials and meet maximum income guidelines. 
Some assume wrongly that FHA loans are also need-based and that income limits apply This is untrue.

FHA loans allow the purchase of a home with up to four living units.
 
Borrowers can rent out the unused living units in the home purchased with an FHA mortgage. For those buying under the USDA program, you may find there is a prohibition on “income-producing property,” and a multi-unit single-family home may fall into that category.

For best results, ask a participating lender to show you these options side-by-side in terms of cost to the borrower, benefits, and restrictions.

THERE IS A LIST OF REQUIREMENTS AND STANDARDS A HOME MUST PASS TO QUALIFY, SEE LISTS BELOW:

LIST OF FHA & USDA BASIC REPAIR REQUIREMENTS FOR A HOME

Non-Permitted additions, Additions that are not up to code are often flagged in FHA loans, but not always.

Garages that have been built up to provide additional living spaces may not meet FHA

Peeling paint that is a lead hazard, usually homes built before 1978. This includes both the interior and exterior of home as well as garages, sheds, fences, and other areas.

Damaged or missing rain gutters and downspouts

Outbuildings that are rotten and in need of demolition

Malfunctioning exterior doors

GFCI outlets in kitchen, bathrooms, and exterior of home

Uncovered junction boxes and exposed wiring

Major plumbing issues and leaks

HVAC systems that are not operational

Major roof issues

Pest infestations that are visible and active

Porches with rotting support columns

Missing appliances that one can reasonably expect to be sold along with home, like cooking range.

Kitchen appliances that are not operational, such as broken faucet or stove

Bedrooms that do not meet minimum safety guidelines, including windows that are too small to exit through or windows with bars that do not release for someone to use window for exit.

Foundation defects

Structural defects

Basement with water issues, such as leaks and standing water.

Standing water present in crawl space or evidence that water puddles in crawl space at times

Non-operational swimming pools, including pools that are empty, pools that do not have a pump and pools that have been abandoned and contain standing water.

Window screens with visible rips and tears

Water heaters that do not have operational pressure relief valves.

Fencing that is broken, leaning, or otherwise damaged so that it is not functional.

Safety handrails must be installed in open stairwells of three steps or more.

Inoperable or abandoned wells must be capped and sealed.

Negative drainage around the home’s exterior must be repaired so water drains away from the house.

VA REPAIR REQUIREMENTS FOR A HOME

Public road access, the home must be accessible from a public road, and the road needs an all-weather surface. Private roads require an easement.

Walls need to be accessible for maintenance purposes.

The home must be available without needing to go through another home, such as if you had to go through one apartment to reach another apartment.

Yards must be accessible without needing to trespass illegally through the yard or unit of another party.

Damaged paint that could contain lead, which generally means paint on homes built before 1978.

Utilities need to be independent surrounding units, including electricity, natural gas, sewer or septic system and running water.

The home must serve as the buyer’s primary residence, not to be used as rental property.

The house needs to have sufficient heat for safety and comfort. Homes with wood burning stoves as the primary heat source must also include a secondary heating system that can provide heating to make the air 50 degrees and to circulate that air among the plumbing.

Fresh, safe water must be available to the homme that is reliable and sanitized.

All areas requiring ventilation for safety must have them, including basements and attics.

The house needs to be comfortably habitable, which means having enough room for the buyer to live, eat, cook and sleep.

Structural defects

Foundation defects

Plumbing issues, including severe plumbing leaks

Rotten wood on the exterior of the home

Any property impairment that makes the home unsafe or unsanitary

Drainage issues that cause water to accumulate in the yard, driveway, walkways, ect.

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