Purchasing a home is a monumental achievement that can serve you for decades. The benefits of home ownership exceed simply having a place to live; the financial advantages are also abundant. The process of buying a home can be daunting for those who aren’t aware of the variety of loan options available. Most people believe that a 20% down payment is required for all types of home loans but this is far from the case. With USDA and FHA loans in Maryland, getting a loan for a home becomes a much more achievable undertaking, with some loan terms starting at zero down payment. By understanding the differences between USDA and FHA loans, you can decide which is best for you and how you can use these loans to afford a home purchase.
Similarities & Differences between USDA Loans and FHA Loans in Maryland
USDA loans are administered by the United States Department of Agriculture for properties that fall into within pre-defined rural and suburban areas. Meanwhile, FHA loans are to assist low-income individuals in purchasing a house. These loans are administered by the Federal Housing Administration. Both types of loans are backed by their respective government agencies, but the finances are supplied by private lenders. These government backings protect the lender from loss and allow for more favorable loan terms. Both FHA and USDA loans have unique attributes that must be understood to make an educated decision on which is best for achieving your goals.
Maximum Lending Amounts
FHA loans in Maryland have a set maximum amount determined by the Department of Housing and Urban Development. This amount is set by the area that the house is located. For lower-end areas, the maximum is set at $314,827, while in high-end areas the maximum is $726,525. USDA Loans do not have a set maximum loan amount, instead, the cap is set based on your ability to qualify for the loan.
Appraisals are necessary for both USDA and FHA loans in Maryland. This ensures the lender that the home that is being purchased is being sold at fair market value. An FHA appraisal has to check that the home meets the HUD standards of health as well as the current market value. Both FHA and USDA loans do not require an independent home inspection but it is always a good idea as it will expose potential underlying issues with the home.
As previously mentioned, the typical requirement for a down payment is a major deterrent for prospective home buyers. FHA loans in Maryland require a downpayment of only 3.5% if your credit score is 580 or higher. If you have a credit score of 500-579, you are required to pay 10% down. USDA loans do not require any down payment at all, making them a very popular choice for first-time buyers.
Private mortgage insurance is crucial to keeping FHA and USDA loans functioning and growing. In the case of FHA loans, a mortgage insurance premium is required throughout the duration of the loan unless you provide a downpayment of 10% or more, which would see the additional insurance fee come off in 11 years. The rate of the mortgage insurance premium is based on the term of your mortgage, your loan-to-value ratio, the total mortgage amount, and the size of the down payment. There is also an upfront insurance premium fee that is usually around 1.75% of your loan.
USDA loans require a funding fee that is either paid when closing or every month in your loan term. This fee includes 1% of your loan amount and 0.35% of the remaining balance on your loan monthly.
USDA Eligibility Requirements
USDA loans are reserved for rural areas, meaning, that to qualify for a USDA loan, the home that you want to buy must be considered to be located in a rural area. Being eligible for a USDA loan means that you have to meet strict regulations for income and the number of people living in the household. You are considered to be ineligible for a USDA loan if your household income is larger than 115% of the median income in your area. There is no minimum credit score needed to qualify for a USDA Loan, however, the majority of lenders will require a minimum credit score of at least 640. Lastly, your debt-to-income ratio has to be 50% or less.
FHA Loans in Maryland Requirements
FHA loans in Maryland are reserved for low to moderate-income Americans, and for first-time homebuyers or those who haven’t owned a home within the last three years. There are no income requirements but you must be able to prove that your income is capable of paying your insurance and mortgage payments every month. If you have a relatively high credit score, you can have an unfavorable debt-to-income ratio and still be eligible. A minimum of 3.5% downpayment is required if your credit score is higher than 580. If your credit score is between 500-579, you must pay at least 10% down.
Take on Your Maryland Mortgage With Professional Mortgage Lenders
If you are looking to get the most out of your USDA or FHA loan in Maryland, you need someone in your corner who will offer you expert guidance throughout your home-buying journey. With Federal Hill Mortgage, our team of brokerage and mortgage experts will ensure that every aspect of your mortgage loan is meant to benefit you. If you are ready to get started in the home purchasing process, call or contact Federal Hill Mortgage today!