VA Home Loan vs. FHA Mortgage

What is a VA loan?

2 Answers

A **VA loan, like an FHA loan, is a mortgage loan secured by the federal government. A VA, loan, though, is secured through the Veteran's Administration rather than the Federal Housing Administration. Like FHA loans, VA loans lower the barriers to homeownership by lowering downpayments and other costs, but they differ from other federally-backed loans in other important ways.

First, VA loans are only open to qualified veterans. To qualify you must be an eligible veteran who has an available loan entitlement; you must live move into the home and live in it within a reasonable period of time after closing; you must have a reasonable debt to income ratio; and you must have good credit. Even though there are some limitations on who can qualify for a VA loan, they are not severely restricted to people who served in the military. For instance, after meeting certain other qualifications, Reservists or National Guardsmen can qualify for VA loans. Un-remarried spouses of veterans who died as a result of service or service-related injuries can also qualify for VA loans. As well, U.S. citizens who served in the armed forces of a U.S. ally during World War II can qualify (so can their spouses). Those people who have some military service, but are still unable to qualify for a VA loan should check with the FHA to see if they can qualify for veteran's loans through it.

Second, VA loans offer considerably more advantages than FHA loans. For instance, VA loans require no downpayment; they offer fixed, competitive interest rates, no matter the buyer's credit history; and they have limitations on closing costs. Further, VA loans have long amortization periods (for conventional funding the terms are usually 15 or 30 years, but VA loans can be longer or somewhere in between) and afford the right to prepay the mortgage without penalty. VA loans are assumable, meaning that veterans can sell their homes to non-veterans and afford the buyer the benefits of a VA loan. One of the biggest benefits of a VA loan is forbearance. This means that the federal government extend leniency to veterans experiencing temporary financial hardship.

A third way in which VA loans differ from FHA loans, and is not an advantage, is that VA loans only secure half of the mortgage loan. Sometimes, FHA loans secure more than half or all of the loan. Though the other advantages of a VA loan may outweigh this, it is still something to consider.

A VA loan is secured by the Veterans Administration. VA loans are great because they require no down payment, no mortgage insurance and technically have no minimum credit score requirement. Most lenders require a 640 score for VA loans, however there are lenders willing to go down to a 580 score for veterans. A great place to find these lenders is The Lenders Network. I've seen Vets get approved for financing with scores under 600 before.