VA vs. FHA

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 property.

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.

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