In the matter of FHA vs. VA loans, which loan is the right choice for you? While FHA loans and VA loans are both government-backed loans, there are distinct differences between them. If you’re interested in using one of these loans to purchase a home, you’ll want to explore the ins and outs of both programs so that you can choose the one that’s best for your specific situation.
FHA vs. VA Loans
In a matchup of FHA vs. VA loans, which loan product will come out on top? The answer depends on your circumstances. To decide which one is the best fit for your needs, you’ll want to weigh a number of factors and understand the similarities and differences between FHA and VA loans.
As NOLO explains, the eligibility requirements for FHA loans and VA loans are one of the major differences between them. Anyone can apply for a loan from the home loan program of the Federal Housing Administration (FHA). The same is not true for the loans insured by the U.S. Department of Veterans Affairs (VA). VA loans are a benefit earned with military service, so they are generally only available to current service members, veterans, reservists, National Guardsmen, or surviving spouses.
As NerdWallet makes clear, both FHA and VA loans have occupancy requirements. Both entities insist that their loans can only be used for the purchase of a primary residence. In addition, they set rules stating that the property must be structurally sound. In fact, each organization requires an appraisal as part of the loan process that evaluates the condition of the property to ensure that it meets basic standards for safety and soundness.
The prospect of coming up with a down payment is often one of the most daunting parts of the journey to homeownership. This is especially true if you’ve heard the old myths about needing a down payment of at least 20 percent. How do FHA loans and VA loans stack up in their down payment requirements? As HousingWire reports, with the possibility of a down payment as low as 3.5 percent, FHA loans look pretty appealing. However, VA loans offer an even sweeter deal by requiring no down payment at all.
A credit score is sometimes described as a three-digit numerical summary of your creditworthiness. Lenders often consider it when determining whether they’ll approve you for a loan and what interest rates and terms they’ll offer you. According to MilitaryBenefits.info, both the FHA and VA loan programs expect lenders to use forgiving credit requirements when evaluating borrowers. For FHA loans, borrowers must have a score of 580 or more for maximum financing. However, lenders may hold out their best rates for borrowers with higher scores. What about VA loans? The VA doesn’t set minimum credit scores, but lenders may have their own standards in place. Again, a higher score will normally help you secure better interest rates and loan terms.
Mortgage Insurance and Fees
Mortgage insurance offers a safety net to the lender in the event that a borrower fails to make their loan payments. It also adds to the cost of your loan. As NerdWallet indicates, borrowers who opt for an FHA loan pay mortgage insurance twice. There is an upfront premium that’s paid at closing. If you’d like, it can be rolled into your loan. In addition, there’s a monthly premium that’s added to your monthly mortgage payment. With a VA loan, you don’t pay mortgage insurance. However, you will pay a one-time VA funding fee, which is used to support the VA loan program. The fee ranges from 1.4 percent to 3.6 percent of the total loan amount and can be paid upfront or rolled into your loan. The fee varies depending on a number of factors, including your military service, your loan type, your down payment, and whether you’ve had a VA loan before.
Do you think a government-insured home loan is your ticket to homeownership? Are you weighing the pros and cons of FHA loans and VA loans? Have you thought about other options like USDA loans? At PrimeLending: Manhattan, Kansas, we’re happy to help you explore the possibilities so that you can feel confident about your decisions. Contact us today to learn more about our services.