Many home buyers with little money down generally make the VA loan vs FHA loan comparison. It would seem to be a one sided battle if put against one another as VA loans have many more upsides than FHA. In the end, you'll see that if you qualify for a VA loan, it would benefit you more to use your VA eligibility and obtain a VA loan vs an FHA Loan.
The FHA loan was developed as a way to help lower credit home buyers with little money to put down on a house. Where they might not have qualified for a conventional loan, they could qualify for an FHA loan. This boosted the housing market tremendously and had been a mainstay for lower credit homebuyers for years...until recently. Changes in credit qualifying and mortgage insurance payment increases have made qualifying for an FHA loan more difficult than ever. Below are the general points of an FHA loan.
- Down payment requirement is 3.5%
- In most cases, FHA limits the loan size to $271,050 (much lower than VA's $417,000)
- An upfront Mortgage Insurance Premium is required on 30 year fixed, ARM and some 15 year fixed FHA loans
- Monthly mortgage insurance is required
- Generally the minimum credit score for an FHA loan is 640
- FHA loans are generally not assumable
- There are less restrictions on fees charged to the borrower than VA loans
VA loans were created to help assist returning wartime veterans by offering federally guaranteed loans with no down payment requirements. In doing so, it transformed the economy and society by allowing millions of veterans the opportunity to own a home that might not have been able to prior to the act being passed by congress. Today it has become the number one loan for veterans and current qualifying military personnel in the United States.
Below are some main points to the VA loan. Compare to the FHA loan and you will see that if you qualify, VA is a much superior mortgage product.
- If you are purchasing a home at or below the county loan limits, there is Zero down payment required.
- Most county loan limits are $417,000, which is much higher than FHA's $271,050
- Generally the minimum credit score of 620 is lower than FHA's 640
- There is an upfront funding fee required, however in cases where the veteran has a service connected disability rating by VA, there is NO upfront funding fee. FHA requires their UMIP on EVERY loan regardless
- You can streamline refinance your existing VA loan into a new lower rate VA loan with no appraisal AND not be restricted by loan size
- In most cases, you can refinance your FHA, Conventional and Subprime loans into a new VA loan at 100% of the value of the home
- VA loans are assumable, which can make your home very attractive when you go to sell in a higher rate environment
- VA regulates the fees that can be charged to the veteran but in some cases, veterans pay ZERO fees