What are the differences of FHA and VA loan rules?


The FHA and VA loan rules vary a bit. FHA and VA home loans are both government backed mortgage programs and rules are a little bit relaxed. FHA home loans can be obtained by everyone and are especially recommended to first-time homebuyers. The rules for obtaining a VA mortgage loan require that you are a former or current military member or national guard/reservist and you have served specific number days and were honorably discharged.

VA Home Loan Rules and Features

  • The basic rule is that you have a Certificate of Eligibility obtainable through the Automatic Certificate of Eligibility system (ACE) or through a VA Eligibility Center.
  • Having a Certificate of Eligibility doesn't automatically grant you a VA loan. It says that you are eligible for a VA mortgage, but the VA lender has the final word - they will evaluate your income and credit and have the final say about your loan. However, VA income and credit requirements are not as strict as the ones for conventional mortgages.
  • No down payment and no private mortgage insurance is required under VA home loan rules.
  • VA funding fee of up to 3.3% is charged for each VA loan, except for veterans who are exempt. For the rest, the VA funding fee can be rolled into the loan.
  • VA mortgage loan limit is set at $417,000 but on the whole there is no effective maximum on the VA loan. If you get a VA loan in excess of the maximum, you will most likely be asked to pay PMI or provide some down payment for the excessive amount.

Comparing FHA Loan Features to VA Mortgage Rules

  • Down payment of 1.5% is absolutely required.
  • Gift funds of up to 6% of the loan amount are allowed to be contributed towards closing costs and down payment.
  • Average and bad credit is acceptable.
  • Closing costs can be rolled into FHA loan amount.
  • 1.5% PMI is due upfront; can be rolled into the loan.
  • FHA appraisals are more expensive than VA's and conventional appraisals.
  • FHA loan limits are lower than VA loan limits as they follow the nature of the area - lower in low cost areas, higher in high cost areas.
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