VA home loans are home mortgage loans which are backed by the Department of Veteran's Affairs. FHA home loans are mortgages lent by the Federal Housing Administration. Though there are some similarities between VA and FHA loans, there are many differences. It is important to compare the differences between VA and FHA home loans before applying for one.
How to Compare VA and FHA loans
Step 1
Review details of VA housing loans and Federal Housing Administration guidelines from their websites (see Resources). Understand the qualification requirements between the two loans so that you know which, if any, you qualify for. VA loans are only available to veterans. According to BankRate.com, veterans must have served for at least 90 days in a time of war and not have been dishonorably discharged, or have served 181 days in a time of peace and not have been dishonorably discharged in order to qualify for a VA loan. FHA loans have fewer requirements. BankRate.com states that for an FHA loan the person trying to obtain the loan must be able to pay 3.5% down payment on the house and must be a legal resident of the United States.
Step 2
Analyze your bank statements and savings accounts to decide what kind of down payment you can make on a house. VA loans were created to allow veterans to buy homes with no money down. The Department of Housing and Urban Development states that FHA loans require at least 3.5% down payment. Therefore, if the house you want is around $400,000, you should expect to pay at least $14,000 down payment using an FHA loan.
Step 3
Think about the time frame you have for buying a house. The process of obtaining a VA loan is more difficult and often takes a lot longer than obtaining an FHA loan. Veterans who want to obtain a VA loan must first fill out a from the Department of Veteran's Affairs, so they can receive a Certificate of Eligibility, proving they qualify for a VA loan. Next, the house must be appraised for value and a Certificate of Reasonable Value must be issued. After filling out the required paperwork, a VA loan can then be obtained. It may require a few months or more to get a VA loan. FHA loans require less paperwork and time. The process of obtaining an FHA loan is the same as with obtaining a conventional loan, though "FHA" must be checked on the application form so the process can take as little as 2 weeks.
Step 4
Look at the drawbacks of each type of loan so that you know what to expect in the worse case scenario. One drawback of VA loans, according to BankRate.com, is that VA loans require the veteran to pay a funding fee to originate the loan, which is typically between .5 and 3.3 percent of the loan amount. The current maximum loan amount that the Department of Veteran's Affairs will guarantee is $240,000 so veterans who want to buy more expensive homes may have to seek additional financing. FHA loans do not require a funding fee like VA loans do, but they do require that the homeowner pay private mortgage insurance, which is an additional ongoing cost to consider.
Tips and Warnings
- Talk with several financial lending institutions in your area regarding VA and FHA loans so you get a better understanding of which is better for you.
Things You'll Need
- Bank statements
- Savings account statements
- Pay stubs
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