VA and FHA loans are both backed or insured by the Federal Government, so realtors often confuse the guidelines between the two types of loans. There are a lot of differences, however, and my friend Jay Vorhees at JVM Lending has the scoop below:
We’ll just let this blog, by JVM’s Appraisal Manager, do the talking. I, Kristin added a few thoughts in brackets afterwards.
The VA loan forces people to use “VA approved appraisers,” which they assign. That often makes the quality worse. The FHA allows us to pick appraisers from whomever we want.
Property Condition: Different
The VA requires clear Section I termite reports, and clear Section II if the items are health and safety risks. FHA allows for “as is” transactions, and does not require a clear Section I. (There have been some recent changes regarding this, but not every lender is aware of them)
Closing Periods: Different
For VA loans, you need 21 days to close them because appraisal turn times are slower, and it’s generally just a more cumbersome process. For FHA, we can close the loans in about 14 days. (Note these are amazing turn times, most lenders need 30 days or more)
Both types of loans have lower rates than your typical conventional loans. Lower rates are a major advantage for both.
Mortgage Insurance: Different
VA has no mortgage insurance, which is one of the reasons this type of financing is such a great opportunity for veterans. The FHA, on the other hand, has a mortgage insurance of 0.85 percent for most loans, with less than 5 percent down.
Up-Front Fees: Similar
The VA has a “funding fee” of 2.15 percent with 0 percent down that decreases with larger down payments. The FHA has an “up-front mortgage insurance premium” of 1.75 percent.
Down Payment: Different
The VA loan allows for 100 percent financing (0 percent down), whereas the FHA requires a minimum of 3.5 percent down.
(Final note: most condo complexes are not FHA approved as they have not gone through the approval process which has to be updated periodically, I have not found that issue for the most part with VA because usually the complexes get VA approved at the time of building and it stays with the property)