FHA and VA loans are two different types of mortgage loans that are backed by the federal government and offered by participating lenders. While both types of loans can provide financing for homebuyers, there are some key differences between the two that you should be aware of if you’re considering one of these loan options.
Credit Score Requirements of FHA Loans vs. VA Loans
One of the main differences between FHA and VA loans is the credit score requirements to qualify. FHA loans have flexible credit score requirements, which can make them a good option for homebuyers with less-than-perfect credit. FHA loans allow for credit scores as low as 500 (with a 10% down payment) or 580 (with a 3.5% down payment).
VA home loans don’t technically have a minimum credit score requirement, but many lenders will set their own minimum requirements ranging from 500-620.
Down Payment & Mortgage Insurance Requirements of FHA Loans and VA Loans
Another difference between FHA and VA loans is the down payment requirement. FHA loans allow for a down payment as low as 3.5% of the purchase price, while VA loans do not require a down payment at all. This can make VA loans an attractive option for homebuyers who may not have a lot of cash saved up for a down payment.
VA loans also have no monthly mortgage insurance for down payments under 20%. Instead they charge an up-front guaranty fee that can be rolled into the loan amount.
FHA loans have both up-front and monthly mortgage insurance for down payments under 20%. For buyers putting less than 20% down, FHA mortgage insurance will last for the entire life of the loan – until the loan is paid off or refinanced. If a buyer puts more than 10% down on an FHA loan, the monthly mortgage insurance will fall off when the loan to value ratio (LTV) hits 78%, equating to 22% equity in the home.
Eligibility Requirements of VA Loans vs. FHA Loans
FHA loans and VA loans have some similarities and some differences. Both types of loans are available to first-time homebuyers and repeat buyers, and they do not have income limits or geographic restrictions like some other loan programs do. However, VA loans are only available to eligible military members, veterans, and surviving spouses, while FHA loans are available to all homebuyers who meet the credit and income requirements.
VA Loan vs. FHA Loan Interest Rates
FHA and VA loans typically offer similar interest rates. However, because VA loans are backed by the government, they may offer more favorable interest rates for borrowers with lower credit scores or who are making a smaller down payment.
Our Take
FHA and VA loans are both government-backed mortgage options that can provide financing for homebuyers. However, there are some key differences between the two that you should be aware of when deciding which type of loan is right for you. FHA loans have more flexible credit score requirements and a lower down payment requirement, while VA loans do not require a down payment and are only available to eligible military members and veterans.
If you can qualify for a VA home loan, it’s very likely that a VA loan will be a better option than an FHA loan, but it’s always best to consult with a mortgage lender to determine which type of loan is the best fit for your situation.