June 2, 2017
Of the three government-backed home loan programs of USDA,
VA and FHA, it’s the VA and FHA that make up the majority of the group. They
are considered government-backed because the loans carry with them an inherent
loan guarantee. Should a government-backed loan ever go into default, which is
relatively rare, the lender is compensated for part or all of the loss. The VA
guarantee compensates the lender at 25% of the loss while the FHA loan pays the
lender 100% of the loss. Otherwise, the loans are remarkably similar as it
relates to loan terms, loan programs and interest rates.
While the FHA loan can be used by anyone who qualifies and
can be used to finance a property in most every location, the VA home loan
program is restricted to who can be eligible. Those who are eligible for a VA
loan include veterans of the armed forces, active duty soldiers with more than
180 days of service, National Guard and Armed Forces Reserve members with a
least six years of service and surviving spouses of those who have died while
in service or as a result of a service-related injury.
Okay, so if someone is indeed VA eligible but can also apply
for an FHA loan, which is better?
The VA loan doesn’t require a down payment while the FHA
program asks for a down payment of at least 3.5% of the sales price of the
home. The FHA program requires an upfront mortgage insurance premium that is
rolled into the final loan amount and also needs an annual mortgage insurance
premium paid in monthly installments over the life of the loan. The VA program
also has an upfront mortgage insurance premium referred to as the “funding fee”
but does not have an annual premium. Both programs can only be used to finance
a primary residence and can’t be used to finance a vacation home or a rental
Okay, so let’s decide. Which is better? If someone is
eligible for either, the lack of down payment and no annual mortgage insurance
gives the nod to the VA program as the interest rates and available programs
for both are almost identical.
For more information or questions about mortgage loans, please call (855) 757-8748.