Difference Between FHA and VA Loan

FHA vs VA Loan

FHA loan and VA loan are two types of home loan available in U.S. If you are a home loan borrower, there are many options available to you apart from conventional loans which are becoming increasingly difficult to obtain these days because of rigid requirements of lenders and also because of steep rise in property rates. FHA and VA loans are two attractive options available for borrowers. There are however major differences between the two and it is always prudent to weigh your options and eligibility before applying for a loan.

FHA stands for Federal Housing Administration and is available to everyone if they belong to the income group for which FHA is intended and if the property is FHA approved. VA is Veterans Administration and VA loans are meant for those currently serving in armed forces or are veterans. There are no income criteria for VA loans. Both these government agencies do not lend money directly but insure the money given by lenders to borrowers.

If you are trying to buy a home and belong to low or middle income group, your borrowing options are severely limited with banks and other institutions because of requirement of a 10-15% down payment of the value of the property that you wish to buy. The purpose of FHA and VA is to provide those with lower incomes opportunity to own homes. FHA was created in 1934 after the great depression to make it easier for poor to buy homes for themselves. FHA does not provide any money but insures the loan thus giving an added security to lenders in case of default.

VA loan guarantee program was initiated in 1944 with a mission to help active duty personnel and war veterans to purchase and retain homes in recognition to their service to the nation. In essence, the purpose of VA loan is same as that of FHA, and like FHA, it does not provide money but insures the loan taken by veterans. Both FHA and VA make available loans at lower rates of interest to eligible candidates.

Difference between FHA and VA Loans

Talking of differences, while a borrower needs to arrange 3.5% down payment in FHA, 0% down payment is required in case of VA loans.

VA loans have very low interest rates in comparison to FHA loans which are normally flexible interest rate loans.

While no mortgage insurance is required in VA loans, 1.75% upfront MIP is required in FHA loans.

In VA loans, 4% max seller concessions are allowed, while in FHA loans max sellers concessions stand at 6%.

Certain types of fees are required to be paid by the seller in both VA and FHA loans.