For many people currently or formerly in the military, the choice of FHA Loans vs. VA Loans is rarely a clear one. Both of these programs are designed to help people who would otherwise have trouble qualifying for a standard mortgage, but each of them have their own restrictions and drawbacks that it is important to understand.
FHA vs. VA Loans is a difficult choice because both programs have a lot of similarities. While the details can differ, essentially these two programs are designed to help potential homeowners with the down payment and closing costs that come with home loans.
The FHA program is actually a collection of several different programs. Every person in America is allowed to apply to FHA programs, but there are restrictions on who is allowed to qualify for most of their programs. The details of these programs change, but essentially an FHA loan can cover 100% of the cost of a home. In order to qualify, borrowers must meet certain income restrictions and be willing to submit to criminal and financial background checks. Each FHA program has different criteria, and each of them offers a different type of help. For example, one program provides new homeowner’s with an interest free loan that can be used to cover their closing costs. Another program offers grants to people who agree to live in the home that they are purchasing for at least nine years.
VA loans, on the other hand, are restricted to current and former members of the military and their spouses. The exact rules on who qualifies can be found on their website. These loans are designed to cover 100% of the cost of a home, leaving the borrower with no down payment. They are not meant to cover closing costs, although there are ways to get a VA loan to cover some of the closing costs on a house. Like FHA loans, the mortgages are backed by the government but actually issued through a bank. In some cases, interest rates on VA loans can be slightly higher than conventional loans, because the 100% financing is a larger risk to a bank than a conventional loan. VA loans also come with a funding fee that is about 2% of the total selling price of the home. This fee can be financed, but it will increase the amount of the monthly payment.