How to Compare VA Home Loans to FHA Loans
Deciding on the best mortgage plan can be a daunting task. However, a number of federal backed programs exist to help homeowners, with the two most common programs being the Federal Housing Administration (FHA) and the Veteran Administration (VA). Both FHA and VA programs offer loans to a range of borrowers with an array of benefits for each. When comparing both programs, separate guidelines and qualifying requirements are applicable to each loan.
Therefore, if you are considering either the FHA or the VA home loans, be sure to look at the benefits of both. Here are some similarities and differences of the two.
To qualify for VA home loans, it requires that you must have been a part of the military at some point in your career or currently serving the military. Additionally, veterans should be able to produce original DD214 discharge form that proves you were honorably discharged from the service. On the other hand, FHA home loans are available to any qualified low-income or first-time homebuyer.
Compared to FHA, VA home loans do not require a down payment. This makes it a distinctive program compared to any other loan programs in the market. VA charges a 2% funding fee for first-time buyers and 3.3% for subsequent buyers. The Funding fee is usually financed into the VA loan amount resulting in a higher loan amount. With FHA, a down payment of 3.5% of the sales price is required. For non-veteran buyers, FHA makes home buying more accessible.
With VA home loans, the lender that funds the loan determines the credit score a borrower must have. However, VA loans deduct the amount of money that the buyer will qualify for based on various factors such as family expenses, day care services, etc. Conversely, FHA will determine the buyer’s eligibility based on proof of steady income and other documentation.
Mortgage Insurance Premium
While most loans require monthly insurance premiums, VA home loans do not include any mortgage insurance. This can be a considerable source of savings for you every month. With FHA, you are required to pay upfront mortgage insurance and a monthly mortgage insurance premium. In actual fact, the upfront insurance charges are often higher than traditional loans mortgage insurance; meaning that you could have a bigger than you anticipated.
After the passage of the Economic Recovery bill of 2008 whose primary aim was to stimulate the real estate industry to offer huge credit limits to VA homebuyers, different states have increased the limits with the standard limit set at $417,000. FHA loan limits are based on the average sales price of the county where the property is situated. Mostly, the limits are much lower.
VA loans offer fixed rates or lower than the standard market mortgage rate in some states. On the other hand, FHA interest rates are lower compared to conventional options except VA. This saves you over the entire lifetime of the loan.
Non-Allowable Closing Costs
With VA transactions, the buyer does not pay closing costs. Additionally, VA buyers do not pay escrow charges or any lender charges such as processing, underwriting, document fees, etc. On the other hand, FHA loans no longer offer non-allowable charges with the lender required to pay lender processing fees.
Waiting Period after Credit Issues
Compared to FHA that has a three-year waiting period for the buyer following a foreclosure or bankruptcy, VA has a two-year waiting on the same. However, extenuating circumstances may cut down these waiting periods.