How VA Loans Differ From Other Types of Loans

FHA loans, VA loans and Conventional loans and are all issued by banks and approved lending institutions, but there are a few major differences with VA and FHA loans. One of the biggest differences is that VA loans are insured and guaranteed by the federal government through the U.S. Department of Veterans Affairs.  FHA loans are also insured by the U.S. government through the Department of Housing and Urban Development, also known as HUD. This means that if the borrower stops making payments on the loan, the government will insure the loan so the lender is protected against loan losses. On the other hand, Conventional loans carry no guarantee from the government against loan defaults.  Since a Conventional loan is not insured by the government, home buyers are required to purchase private mortgage insurance (PMI) if they have less than a 20% down payment.

With a VA loan, there is no down payment required because of the government guarantee to the lender.  This gives military veterans and service members the ability to purchase a home even if they do not have down payment funds or they want to save money for other purposes. With FHA loans, a lesser down payment is required compared to a Conventional loan, but FHA loans require 2 other types of mortgage insurance known as Up Front Mortgage Insurance Premium (UFMIP) and monthly mortgage insurance premiums (MIP).

VA loans have specific requirements for eligibility that other types of loans do not require.  First, a potential homebuyer must be a veteran, active duty service member, spouse, or dependent who meets the VA specifications for time served or eligible family relationship to the service member or veteran.  Also, eligible VA borrowers can utilize VA loans to refinance non-VA mortgages, even if income or credit is thought to be inadequate.

To qualify for an FHA or Conventional loan you do not have to be a former or active member of the military, but you do need to have at least a small down payment available.  Down payment funds can even be in the form a gift from a family member or from a qualified Down Payment Assistance program.

For more information about VA loans and starting the loan process, please reach out to us!