What Is the Difference between an FHA Loan and a VA Loan?

There are a number of federal programs that help homeowners, two of which are the FHA loan program and the VA loan program. The Federal Housing Administration (FHA) works with low income, or first time home buyers. The Department of Veterans Affairs (VA) works with military service members. Both departments aim to reduce the cost of financing and spread the ability to get a mortgage to individuals who may not otherwise be able to own a home.

Federal Loan Guaranty Benefits

Both the VA and the FHA operate on a system of loan guarantees. This means they offer assurance to a lender, promising to buy the loan out of default if the borrower fails to pay. This is essentially mortgage insurance from the safest form of insurance company: the federal government. As a borrower, you will apply for a private loan. Then, the FHA or VA will insure the home against default. This will lower your interest rates because your loan is far less risky. It will also increase your chances of getting a loan. In fact, both programs have low down payment options or low income options.

Qualifying for an FHA Loan

To qualify for an FHA loan, you must fit into one of the many programs available. Programs include help for first time home buyers, assistance for those looking to rehabilitate homes in depressed areas and even loans for rural properties. In any case, you will have to qualify for a private loan and the guaranty separately. While the goal is to extend financing to individuals who may have low income, or little home ownership experience, the FHA loan program is not designed to help bad credit borrowers. An individual with bad credit will not likely qualify under the program. Instead, a person must have a good record of repaying debts, especially federal debts, and just need help with the income restrictions or down payment requirements on a private loan. One unique exception is the Help for Homeowners stimulus program, which assists individuals with bad credit who are facing foreclosure.

Qualifying for a VA Loan

A VA loan is an entirely unique loan program because it deals strictly with military personnel. To qualify, you must first get a certificate of eligibility from the VA. This will require that you provide information to confirm you are either actively serving in the armed forces or were honorably discharged. Once you get your certificate, you will then seek a private home loan. The certificate will show how large of a guaranty you qualify for, which is partially based on credit and partially based on your service. Using this guaranty, your loan will be easier to secure. In specific, the VA loan program comes without a down payment requirement. This is unique to the VA loan, as the FHA loan program does require at least a small down payment. Military personnel commonly face challenges getting loans because they have short credit histories, low incomes or a record of moving from place to place. The VA home loan program is designed to overcome these issues.