What is the Differences between FHA and VA Government Loans
The two government-backed loan programs have distinctions. VA loans offer no down payments and a federal guarantee while FHA mortgages can be obtained for 3.5% down and are insured through HUD. When comparing government-backed mortgage programs, the differences between FHA and VA loans are clear.
An FHA loan is a mortgage insured by the Federal Housing Administration. Borrowers with FHA loans pay for mortgage insurance, which protects the lender from a loss if the borrower defaults on the loan.
No less important, FHA financing is safe. Like VA loans, an FHA mortgage doesn’t have any “gotcha” clauses that create unfair costs or surprise foreclosures.
A VA loan is a mortgage loan in the United States guaranteed by the U.S. Department of Veterans Affairs (VA). The VA loan was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry).
Following is a chart which will help you determine the similarities and the differences between Federal Housing Administration Loans (FHA) and The Department of Veteran’s Affairs Loans (VA).
|FHA Loan||VA Loan|
|Who?||Anyone with qualified income.||Eligible Veterans only, or widows/widowers of veterans who have not remarried.|
|Govt. Support||FHA is a Federal Agency under HUD. It insures the lender against loss due to small down payment.||Veteran’s Administration: VA guarantees loans by making the veteran personally liable.|
|Who lends the money?||Any lending institution approved by FHA.||Any lending institution approved by VA or, on rare occasions, VA itself will lend directly.|
|Interest rates||Negotiable between lender and borrower. Free-flowing in the market place.||Negotiable between lender and borrower. Free-flowing in the market place.|
|Points||Prepaid interest payable by either buyer or seller or both. Points vary in the market by lender.||Prepaid interest payable by either buyer or seller or both. Points vary in the market by lender.|
|Types of Properties||1-4 family, owner-occupied.||P1-4 family, owner-occupied.|
|Down payment||Averages 5% down. Down payment is subtracted and closing cost added to establish an ACQUISITION COST.||NO DOWN PAYMENT REQUIRED.|
|Appraisal||House must appraise at Acquisition Cost or sale price, whichever is lower.||House must appraise at either the sale price or the CERTIFICATE OF REASONABLE VALUE, whichever is lower.|
|Assumptions||Allowable under some conditions. Must have FHA approval for all loans after 1987.||Allowable but must be QUALIFIED VETERAN for the seller to be relieved of liability. Requires substitution of eligibility of new veteran. If non-veteran or non-approved veteran assumes, the original veteran is still liable. If a veteran sells and pays off a VA loan his/her eligibility may be used again without restriction.|
Should You Choose a VA Loan or an FHA Loan?
If you’re a qualifying member of the military, a VA loan is a great way to take advantage of today’s low mortgage rates. Many people aren’t sure if they want to deal with the perceived hassle of a VA loan. With the right Home Loan Experts, getting a VA Loan can be easy and painless. If you are a veteran with no available VA entitlement, FHA loans can make a lot of sense. Whichever option you choose, make sure you work with a trusted mortgage lender in order to lock in a competitive rate.
In bottom line
Both the VA and the FHA financing programs are not really loans; they are instead insurance. The actual money for the loans comes from the private sector. The VA and FHA simply provide insurance for loans that meet their standards.