Veterans have access to a number of different loan programs that are guaranteed by the federal government of the United States. Two of these are FHA loans and VA loans. Both are suitable options for veterans looking to finance their home, but there are a couple key differences between FHA and VA mortgages. Here’s everything you should know.
FHA loans vs. VA loans
An FHA loan is a mortgage that’s partially insured by the Federal Housing Administration (FHA). They are a good choice for first-time homebuyers, as well as median-income and below-median-income borrowers. Unlike VA loans, they are not exclusive to veterans.
A VA loan is a mortgage that’s backed by the U.S. Department of Veterans Affairs (VA). They are only available to veterans, people serving in the armed forces, and surviving spouses*. They could allow you to purchase your home with no down payment, and you won’t have to pay for private mortgage insurance (PMI). They often offer competitive loan terms and rates to borrowers who qualify.
Further information on FHA and VA loan requirements
With FHA loans, you will usually make a lower down payment. While a conventional mortgage may require you to put down 10% or 20% of the loan amount, FHA mortgages may require a more manageable 3.5%.
FHA loans may have higher payments because they require you to pay mortgage insurance monthly. The good news is you can refinance as there are no prepayment penalties. FHA mortgages are designed to make homebuying easy, and are often an excellent option for low-to-moderate income homebuyers.
On the other hand, VA loans have no down payment, and require no mortgage insurance because they are insured by the VA. You may have to pay the VA funding fee at closing, which is a small tradeoff for the amount you will save over the life of your loan.
Can you refinance an FHA loan to a VA loan?
Yes, it is possible to refinance a VA loan from an FHA loan to get a lower monthly payment, or better interest rate. Even if you do not take any cash out of your home, this will be considered a VA cash-out refinance.
If you are interested in additional information on the options a lender like The Federal Savings Bank can offer you as a veteran, we strongly encourage you to get in touch with us at +1 877-788-3520. For more on FHA and VA loans, you can explore our Learning Center. We hope you’ll trust us to guide you through the lending process.
Subject to credit approval. Terms and conditions may apply. Property insurance is required for all loans secured by property. *For more detailed information on eligibility please visit the VA website.