VA Loans Usually Beat USDA on Monthly Cost
VA and USDA are the two big zero down mortgage options, but they are built for different buyers. VA is for eligible Veterans and Military borrowers and has no income cap and no geographic restriction. USDA is needs based and location based, and it includes an ongoing annual fee. When both are available, VA often wins on monthly cost and flexibility.
Quick comparison, what is different
| Feature | VA loan | USDA loan |
|---|---|---|
| Down payment | $0 | $0 |
| Eligibility | Veterans and service members | Income qualified households |
| Where you can buy | Anywhere | Eligible rural areas only |
| Ongoing insurance fee | None | Annual fee paid monthly |
| Upfront fee | Funding fee if not exempt | Guarantee fee |
USDA has income and location restrictions
- Income limits apply: USDA is designed for low to moderate income households, so your total household income must fit program limits for your area and household size.
- Location must qualify: The property must be in an eligible USDA area, which can include rural and some suburban ZIPs, but many city cores do not qualify.
- VA has no income cap: VA does not impose an income limit, underwriting focuses on DTI, residual income, and ability to repay.
- VA has no map restriction: VA can be used nationwide for a primary residence, so you are not constrained by eligibility maps.
Cost comparison, VA usually wins month to month
- USDA has an ongoing fee: USDA charges an annual fee that is paid monthly for the life of the loan, which increases the monthly payment.
- VA has no monthly PMI: VA does not require monthly mortgage insurance, which is why the VA payment is often lower at the same price.
- Upfront fees differ: USDA uses a guarantee fee. VA uses a funding fee for many borrowers, but eligible Disabled Veterans can pay zero.
- Break even depends on exemption: If you are exempt from the VA funding fee, VA usually wins both upfront and monthly cost versus USDA.
Qualifying standards and approval paths
- VA credit flexibility: VA has no official minimum score and can approve lower scores with manual underwriting when the file is strong on residual income and history.
- USDA prefers higher scores: USDA approvals often prefer stronger credit profiles for automated underwriting, and weaker files can be more difficult to place.
- DTI approach differs: VA can be more flexible on higher DTI when residual income is strong, while USDA tends to be stricter on DTI ratios.
- Both still require stability: Income continuance, clean recent payments, and a realistic housing payment are the foundation for both programs.
FAQs
Is USDA or VA better for Veterans?
Does USDA have mortgage insurance like FHA?
How do I check if a home is USDA eligible?
Are VA Loans and USDA Loans Both Zero Down Options?
Yes, VA loans and USDA loans can both allow zero down on an owner occupied primary residence. The difference is who can use them, where the home can be located, and how much the ongoing monthly payment grows from program fees and escrow costs. A clean comparison starts with total payment, not just principal and interest, because taxes and insurance often decide what is actually affordable.
- Zero down means the purchase does not require a down payment, but you still need cash for inspection, appraisal related charges, and prepaid escrow items like homeowners insurance and property taxes.
- VA loans do not charge monthly mortgage insurance, so the monthly payment can be lower at the same loan amount when taxes and insurance are similar and the borrower is eligible.
- USDA loans include an annual fee paid monthly, so the payment includes a built in insurance style cost that stays in place until the loan is paid off or refinanced.
- Both loan types require owner occupancy and a home that can pass appraisal and condition standards, so eligibility alone does not guarantee an easy closing.
- Pick a target home price and estimate taxes, homeowners insurance, and any HOA dues, then build a total monthly payment so both loan types are compared using the same real world assumptions.
- Run a zero down cash plan that includes inspection, appraisal charges, and prepaid items, then set a reserve goal so you do not drain savings to win an offer.
- Compare the monthly program costs, then decide which loan produces the safer monthly cushion after bills, not which loan produces the highest approval number.
Who Qualifies for VA Loans and USDA Loans?
VA loans are limited to eligible Veterans, eligible Military service members, and certain surviving spouses. USDA loans are available to the general public when household income and property location rules are satisfied. Both loan types require owner occupancy and lender underwriting, but only VA loans require service eligibility while USDA loans require needs based eligibility gates that many buyers miss.
- VA loan eligibility is earned through service, so the key first step is confirming a Certificate of Eligibility and clarifying whether entitlement is full or partially used by another VA loan.
- USDA loan eligibility is driven by adjusted household income, so income from household members can count even when a person is not on the mortgage, which can disqualify an otherwise strong borrower.
- VA loans can be used in urban, suburban, or rural areas, while USDA loans require the home to be in an eligible area, so the address can end the option quickly.
- Both loan types still require lender approval, so credit history, debt load, and documentation quality can override program eligibility in either direction.
- Confirm VA loan eligibility first if you have Military service history, because it removes the income cap gate and usually improves monthly payment math compared with other zero down options.
- Confirm USDA household income eligibility early if you are not VA eligible, because buyers often learn too late that a non borrowing household member income pushes them above the limit.
- Ask the lender what underwriting path they will use and what overlays apply, because one lender may approve a file that another lender declines under stricter internal policy.
Start eligibility screening with service rules, then translate eligibility into a payment and cash plan that you can sustain. VA.gov eligibility.
How Do USDA Income Limits and Household Rules Work?
USDA loans use adjusted household income limits, not only the income of borrowers listed on the note. That means a working spouse, adult child, or other household member income can count in the calculation and can disqualify the file even when the borrower income alone looks under the limit. The fastest way to avoid a dead deal is to understand who is included in the household calculation and to document all sources up front.
- Household income includes more than wages, so side income, overtime patterns, and recurring benefits can affect eligibility even if the buyer does not consider them part of mortgage qualifying income.
- Adjusted income can be reduced by certain allowances and deductions under USDA rules, so a borrower who is close to the limit should confirm the adjusted calculation rather than guessing.
- Income limits are county specific and household size specific, so a buyer should validate the exact limit for the property county rather than relying on national numbers.
- USDA eligibility is binary, so if the household is above the limit, the loan type is not available and there is no underwriting override that can rescue it.
- Write down every adult household member and list all recurring income sources that appear on pay stubs, tax returns, or benefit letters, because USDA underwriting can count income even when it is not used for conventional qualifying.
- Compare the household to the county income limit and verify whether any allowable deductions apply, then keep proof ready so the lender can compute adjusted income accurately.
- Recheck household income if a job change, promotion, or bonus cycle begins during underwriting, because a mid process increase can push the household above the limit and force a loan type change.
USDA income eligibility is a program rule and it is not optional. 7 CFR 3555.151.
How Do USDA Property Location Rules Work?
USDA loans require the home to be in an eligible area, which is often rural and can include some suburban edges, but it excludes many dense urban cores. Eligibility is determined by the property address, not by the borrower, so a buyer can be income eligible and still be blocked if the home is outside the map boundary. The best practice is checking the address before touring homes seriously.
- USDA property eligibility is address based, so a neighborhood on one side of a road can qualify while a nearby neighborhood does not, making assumptions unreliable and expensive.
- Eligibility can shift over time, so a home that was eligible a few years ago may not be eligible now, which is why the current address check is mandatory.
- USDA loans are for primary residences, so second homes and investment purchases do not fit the program intent even when the address qualifies.
- Appraisal and condition still matter, so an eligible address does not guarantee an easy closing if the home has safety issues, deferred maintenance, or questionable market value support.
- Check the exact street address in the USDA property tool before you write an offer, because the location gate is absolute and there is no workaround when the address is ineligible.
- Confirm the home will be owner occupied and that your timeline supports occupancy, because USDA loans are not designed for rentals or long distance second residences.
- When the address is eligible, treat the next step as a standard mortgage diligence process, including a full payment estimate, inspection planning, and document readiness for underwriting.
Use the address check tool before you invest time and money in an ineligible property. USDA Property Eligibility Map.
Which Loan Has Lower Ongoing Monthly Costs?
VA loans often produce a lower monthly payment than USDA loans at the same home price because VA loans do not have monthly mortgage insurance. USDA loans include an annual fee that is paid monthly for the life of the loan, which increases the payment even when the interest rate is similar. The real comparison is total payment plus cash to close, with program fees treated as part of the mortgage cost.
| Cost driver | VA loans | USDA loans | What to watch |
|---|---|---|---|
| Ongoing insurance style charge | No monthly mortgage insurance | Annual fee paid monthly | USDA annual fee increases total payment and reduces cash flow buffer. |
| Upfront program fee | Funding fee may apply unless exempt | Upfront guarantee fee | Both can be financed, which raises balance and interest cost over time. |
| Taxes and insurance | Escrowed like any mortgage when required | Escrowed like any mortgage when required | Taxes and insurance can change after closing and can erase small program advantages if not budgeted conservatively. |
| Cash reserves impact | Lower monthly payment can preserve reserves | Annual fee reduces monthly margin | Monthly margin is what prevents late payments when repairs, childcare, or commuting costs rise. |
- A VA loan funding fee exemption can materially improve long term cost because it reduces the financed balance and keeps the payment lower without trading off monthly insurance cost.
- USDA loan annual fee remains a monthly line item until payoff or refinance, so a buyer planning to stay long term should treat that fee as permanent in the budget.
- Both loan types still require realistic taxes and insurance assumptions, because an escrow increase can stress a budget more than the difference between program fees.
- When comparing payments, use the same interest rate assumptions, the same taxes, and the same insurance quote range so the comparison reflects program rules, not input errors.
- Ask each lender for a written payment breakdown that includes the program fee, taxes, insurance, and any HOA dues, then compare totals rather than focusing on the interest rate headline.
- Decide whether you are likely to refinance in the next few years, because the longer you hold the loan, the more monthly program fees matter to total cost.
- Keep a reserve plan after closing, because the safest choice is the loan that leaves you with monthly margin and cash reserves, not the loan that maximizes the purchase price.
Confirm the VA funding fee rules and the USDA guarantee fee structure before you lock a loan. VA funding fee and loan closing costs Single Family Housing Guaranteed Loan Program flyer.
How Do Underwriting Standards Differ for USDA Loans and VA Loans?
VA loans and USDA loans both use lender underwriting and automated findings, but the risk models differ. VA loans rely heavily on residual income as a safety test, which can allow higher DTI when cash flow remains strong. USDA loans rely on income eligibility first and then apply ratio analysis and compensating factors, often with less tolerance when the payment is tight.
- VA loan approvals can remain viable at higher DTI when residual income is strong and the file shows clean repayment history, stable income, and reasonable payment shock compared with the current housing cost.
- USDA loan approvals can become fragile when the annual fee pushes the payment higher, so small changes in taxes, insurance, or debt payments can flip an approve into a decline under automated findings.
- Credit score treatment differs by lender overlays, but USDA loans often see smoother automated findings when scores are stronger and the file is simple, such as stable W2 income and clear asset sourcing.
- Both loan types punish documentation gaps, so large deposits, inconsistent bank statements, and last minute job changes create delays and rework that can break contract timelines.
- Prepare a clean income file with stable pay documentation, and avoid relying on overtime, bonuses, or side income unless you have a strong history that a lender will count consistently.
- Clean up the debt profile before you apply by reducing revolving utilization and removing small monthly payments, because ratio improvements are faster than trying to negotiate exceptions.
- Keep assets and deposits easy to source, because both USDA loans and VA loans can stall when underwriters cannot document where funds came from and whether they are stable.
- VA loans can be the easier path for eligible Veterans who have strong cash flow and want a residual income focused approval model without an ongoing monthly insurance style fee.
- USDA loans can work well for non Veteran buyers in eligible areas who fit income limits and want zero down, but only when the ongoing annual fee still leaves enough monthly budget margin.
- Either loan type can be risky when you buy at the edge of approval, so the safest strategy is setting a personal payment ceiling that leaves room for repairs, savings, and escrow increases.
How Should You Choose Between USDA Loans and VA Loans?
Choose VA loans first when you are eligible and you want the lowest ongoing monthly payment structure. Choose USDA loans when VA loan eligibility is not available and the home and household pass the USDA gates. The best decision comes from a structured comparison using the same home price, the same tax and insurance assumptions, and written lender quotes so you are not guessing.
- If VA loan eligibility exists, VA loans often provide the cleaner path because there is no household income cap and no rural map restriction, so the decision becomes payment and property fit.
- If VA loan eligibility does not exist, USDA loans can provide a zero down path, but only when the address is eligible and household income stays under the county limit throughout underwriting.
- If you expect income to rise soon, USDA loans can become unavailable mid process, so a buyer close to the limit should plan a backup such as FHA or conventional with a down payment strategy.
- If you plan to move within a few years, focus on cash flow and total cost of fees, because refinancing and selling costs can make small program differences less important than stable monthly affordability.
- Confirm eligibility gates first by verifying service eligibility for VA loans and address plus income eligibility for USDA loans, because a loan type that fails eligibility is not worth pricing.
- Request written estimates for both loan types from lenders on the same day and compare total monthly payment, cash to close, and required reserves so you can judge real budget impact.
- Choose the loan that leaves the most monthly margin and post closing reserves, because margin is what keeps the loan performing when repairs, medical costs, or escrow increases appear.
The Bottom Line
USDA loans and VA loans can both provide zero down financing, but they are not interchangeable. VA loans are earned through Military service and typically win on long term monthly cost because there is no ongoing mortgage insurance style fee.
USDA loans are needs based and can be a strong option for buyers who are not eligible for VA loans, as long as household income and property location rules are satisfied. A smart comparison starts with eligibility screening, then moves to total payment using realistic taxes, insurance, and HOA costs.
If you are eligible for VA loans, price VA loans first and treat USDA loans as a backup only when the address and income gates clear cleanly. If you are using USDA loans, keep a buffer for the annual fee, escrow changes, and repairs so the payment stays sustainable after closing.
References Used
- VA home loan eligibility requirements (VA.gov)
- USDA adjusted household income rules (7 CFR 3555.151 on eCFR)
- USDA property eligibility address checker (USDA map tool)
- VA funding fee and closing cost guidance (VA.gov)
- USDA Single Family Housing Guaranteed Loan Program fee overview (official flyer PDF)
Frequently Asked Questions
Can I apply for USDA loans and VA loans at the same time?
You can compare both loan types with lenders, but you will close with one mortgage. Eligibility gates differ, so validate VA service eligibility and USDA address and household income first, then price both options with the same taxes and insurance assumptions.
Do USDA loans count a non-borrowing spouse’s income?
Yes. USDA loans use adjusted household income, which can include a non-borrowing spouse or other adult household members. This can disqualify a file late if you do not disclose it early, so confirm income eligibility before you write offers.
Do VA loans have income limits like USDA loans?
No. VA loans do not have a program income cap. Approval depends on service eligibility, lender underwriting, and ability to repay. USDA loans require household income under the county limit, and that rule is a hard eligibility gate.
Do USDA loans require the home to be in a rural area?
USDA loans require the address to be in an eligible area, which often includes rural and some suburban zones. Many urban cores are excluded. Always check the specific address on the official USDA map before you spend money on inspections.
Do VA loans work for homes in major cities?
Yes. VA loans are not restricted by a rural eligibility map. You can buy where the home meets program requirements and your lender approves the file. You must intend to occupy the home as your primary residence.
What is the biggest monthly payment difference between USDA loans and VA loans?
USDA loans include an annual fee that is paid monthly for the life of the loan, which raises the payment. VA loans do not charge monthly mortgage insurance, so VA loan payments are often lower at the same rate and loan amount.
Are USDA loans harder to qualify for than VA loans?
USDA loans can be harder because they have two extra gates, address eligibility and household income limits. VA loans can be simpler for eligible Veterans because there is no income cap or location restriction, but lender overlays still apply.
Can I refinance a USDA loan into a VA loan later?
Yes, if you become eligible for VA loans and qualify at the time of refinance. Many borrowers refinance to remove the USDA annual fee and improve monthly payment. Approval will still depend on credit, income stability, and appraised value then.
Do USDA loans have mortgage insurance?
USDA loans charge an annual fee paid monthly, which functions like mortgage insurance even though it is labeled as a fee. It stays in place for the life of the loan unless you refinance or pay off the mortgage.
How do I compare USDA loans and VA loans fairly?
Use the same home price and the same taxes and insurance assumptions, then compare total monthly payment and cash-to-close using written lender disclosures. Include program fees, HOA dues, and reserve requirements so you are comparing real affordability.