As you prepare to buy that first home, you may be wondering what home loan options are available to you. As a first-time homebuyer and active-duty service member, veteran, or survivng spouse, you can likely qualify for either an FHA loan or a VA loan. Both typically allow for low to no down payments and accommodate lower credit scores, but which is right for you? Check out our FHA vs. VA loan breakdown.
Benefits of applying for an FHA loan
Issued by Federal Housing Administration-approved mortgage lenders like OVM Financial, FHA loans allow buyers who might not otherwise qualify for a conventional mortgage loan to buy a home. Some of the FHA loan benefits include the following:
- You can enjoy a down payment as low as 3.5% if you have a minimum credit score of 580.
- You can gain loan approval even with a credit score as low as 500 (though you’ll probably have to make a 10% down payment).
- You can still qualify for a home loan even if you’ve had a fairly recent foreclosure (three years or more ago) or bankruptcy (two years or more ago).
While there are many appealing reasons to apply for an FHA loan, keep in mind the loans have their drawbacks, including a requirement to pay mortgage insurance premiums, often higher interest rates, and strict requirements as to how much you can pay for a property based on your locality.
Benefits of applying for a VA loan
Offered through the U.S. Department of Veterans Affairs, VA loans are available to active and veteran service members and their surviving spouses. VA loans offer one of the best mortgage options out there for those who qualify. Here’s why:
- VA loans require no down payment, meaning you can finance up to 100% of the purchase price of your home. Conventional mortgage loans require down payments of at least 10% to 20% in most cases, and even FHA loans require a small down payment.
- You don’t have to pay mortgage insurance. Other loans, even FHA loans, require you to pay a mortgage insurance premium if you make a down payment of less than 20%, which adds to the overall cost of your mortgage.
- You will pay less in closing costs with a VA loan. That’s because the VA limits what lenders can charge for loan origination and also doesn’t permit fees you’d see with conventional home loans, like settlement fees, lender-ordered home inspections, and document preparation fees, all of which can often add hundreds (if not thousands) of dollars to your home purchase.
You also may enjoy more seller-paid closing costs and concessions with a VA loan as well as more competitive interest rates.
Now that you have compared FHA vs. VA loan options, you can see that both loan programs have several benefits for buyers. However, if you are connected to the military, it’s likely that a VA loan will be the best selection for your purchase.
If you are not connected to the military, you will enjoy the flexibility of a FHA loan. No matter which route you take, we will be here to help you navigate the mortgage process with ease.