FHA Loans vs. VA Loans -

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FHA Loans vs. VA Loans

02-28-2022 • MHS Lending

When starting your home buying journey, it’s vital that you understand the best options out there regarding loan products. This is especially important because this is often the biggest purchase you’ve made to date and is a major commitment. Choosing the loan product that works best for you is a decision that should be made with care. The best way to approach this is to make sure you understand the main differences so you can make an informed decision.

Overview of FHA Loans

FHA Loans are common home loans backed by the Federal Housing Administration. Just like VA Loans, the government backs these loans in case the borrower’s default on the loan, but instead of only a 25% guarantee, FHA Loans are fully insured by the government. Even though the guarantee is a major benefit of the FHA Loan, it doesn’t have the same benefits of the VA Loan like a $0 down payment requirement, and no PMI.

Some of the great benefits that you’ll find with FHA Loans are because the government insures the loans which means lenders are protected against loss if the borrower defaults on their loan. With this protection, lenders can offer more flexibility. These benefits include credit score requirements typically being lower than those of other loans, borrowers who have financial issues on their history like a past bankruptcy can still qualify and closing costs can often be rolled into the loan.

Overview of VA Loans

For veterans and military families, the VA Loan is one of the best loan options, especially because of the benefits available that other loan products don’t offer. This loan is guaranteed by the United States Department of Veterans Affairs (VA) and is reserved exclusively for military members and veterans.

With amazing benefits ranging from a $0 down payment to no private mortgage insurance (PMI), the VA Loan allows eligible service men or women, veterans, and some military spouses the opportunity to buy a home using advantages only available to those serving or who have served in the United States military.

Key differences between FHA Loans and VA Loans

While both the FHA Loan and the VA Loan are backed by the government, here are a few important differences between the two:

  • Down payment: The VA Loan has no down payment requirement while the FHA Loan has a 3.5% minimum down payment requirement.

  • Credit score: There is no minimum credit score required by the VA and relaxed requirements by lenders while FHA Loans have a 580 minimum credit score with a 3.5% down payment and 500 minimum credit score with a 10% down payment.

  • Fees: With the VA Loan there is no PMI (private mortgage insurance), but there is a small VA funding fee (typically between 1.25% and 3.6%). With the FHA Loan, there is a 1.75% PMI due up front as well as annual fees.

  • Eligibility: The VA Loan is reserved exclusively for veterans, service members, and military families whereas the FHA Loan does not have the same requirements for eligibility and is considered a good option for borrowers with lower credit scores of high DTI ratios.

Getting started with the VA Loan

To select the best loan for you, take a closer look at the qualifications required for each loan, its benefits, and its fees. Lenders who are knowledgeable about each of these different loan products and your situation, like our experts at MHS Lending, can also help you determine what works best. Once you feel confident in your decision, you can get started on the fun part, searching for a home!

If you are eligible for a VA Loan and would like to take advantage of your hard-earned benefits, we are here to help you every step of the way. As a VA-approved lender specializing in VA Home Loans, our team of experts is passionate about helping you live the American dream you worked so hard to defend. See what your military service has earned you and get started by calling us at 619-728-7620 today!