VA vs. FHA: Which One Is Better?

Posted by Lauren Schneider on Tuesday, January 7th, 2020 at 7:20am.

Should I Get an FHA or VA Loan? What You Need to KnowThose trying to decide between a VA or an FHA loan may have a number of questions before getting started. It's time to find out more about how the two are similar, how they differ, and how Palmer Lake homeowners can use this information to decide which is right for them.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

Mortgage Facts

Both VA and FHA loans are backed by the government to encourage home buying. However, the rates aren't always as low as homebuyers may think. When it comes to comparing the averages, the VA loan boasts the lowest rates when compared to both FHA and conventional lenders. In addition, VA loans do not require Private Mortgage Insurance, a cost that can add up to 1% of the total cost of the home to a homeowner's mortgage payment per year (until reaching 20% equity).

Eligibility Requirements

A VA loan is granted to those in the Army, Air Force, Coast Guard, and Marines so long as they have served at least 181 days in peace or 90 days in war. National Guard and Reserves members can apply after six years of service. Spouses may also be eligible if their partner died during active duty.

FHA candidates only have to have a minimum credit score and down payment to be eligible.

Down Payments

The down payment is the biggest expense for homeowners and can often interfere with their ability to pay for incidental costs, such as closing fees and property insurance. With a VA loan, buyers are not necessarily required to make a down payment, whereas an FHA loan will require at least 3.5%. Couple the down payment requirements with the lack of PMI, and the savings for a homeowner can be significant. These benefits make it easier for VA homeowners to pay the principal of the loan rather than putting the majority of their money toward the interest.

Credit Scores

Buyers with lower credit scores may find that the FHA lenders are more forgiving than the VA lenders. Even though the loans are being backed by the government, the minimum scores are still determined by the lenders. A 580 score may be approved for an FHA, but VA loans will ideally want to see at least 660. The good news for VA lenders though is that lenders may be more forgiving if the applicant has had a bankruptcy or foreclosure in their past.

VA Loan

The VA loan is the winner for nearly every category when compared to the FHA. For most buyers, it makes sense to raise a credit score rather than apply for the FHA loan if that's the only thing holding them back. However, there are at least a few things that everyone should know before applying:

  • The VA charges a funding fee that benefits the Department of Veterans Affairs. How much a buyer pays depends on how much their down payment is.
  • Those who served in the National Guard and Reserves are likely to pay a higher funding fee than those in other branches.
  • The benefits will change depending on how many times a person has utilized VA loans in the past.

As long as the buyer qualifies for the VA loan, it's usually the better option. These loans give buyers more leeway when it comes to their down payment and overall incurred fees. However, buyers must still meet all eligibility requirements to apply.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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