The VA Loan And The FHA Loan: What's The Difference?

Added November 14, 2007 | Updated January 22, 2008

VA loans and FHA loans are considered government loan products. FHA loans are those that are insured by the Federal Housing Administration, a branch of the government.  VA loans are guaranteed by the Veterans Benefits Administration, a subdivision of the Department of Veterans Affairs. Many times you will hear these referred to as government loans, but this is not technically an accurate statement. The government does not issue the loans themselves, but rather provides a guarantee or insurance to the lenders that do lend to borrowers. While these two loans are both backed by the government, there are significant differences between the two.

FHA Loans

FHA loans are often utilized by individuals who have a lower income, imperfect credit, or are buying their first home.  It may be easier for an individual to qualify for this type of loan than for a conventional or traditional loan. An FHA loan will have a mortgage insurance premium included in the monthly payment and also has an up front insurance premium. It is necessary to meet the guidelines set forth by the FHA program to obtain this type of loan.  Some borrowers are able to obtain an FHA loan with a small down payment (usually as low as just three percent).

VA Loans

VA determines the guidelines for who is eligible to obtain the loan.  You must be a veteran to qualify and you must have been honorably discharged from service, or currently be serving, or be an active reservist with certain minimum service requirements.  Just like the FHA loan, there are income and credit guidelines for obtaining a VA home loan. Some borrowers qualify for a VA loan even though they didn't qualify for a conventional loan. This loan can help those who are struggling to get a conventional loan due to lower income, some minor credit problems, or being a first-time homebuyer.  

There are additional benefits to the VA loan. For example, you do not have to have any down payment when securing this type of loan. With many other types of loans, you have to pay PMI, or mortgage insurance, which protects the lender in case of default.  This is not required on a VA home mortgage loan.  There are strict guidelines that are followed regarding closing costs and origination fees, which can make the loans more affordable than other types of loans.  

The difference in these loans is significant.  It's important to consider options carefully.  Government backed loans have put many borrowers on a successful path to home ownership.

The VA Loan originated in 1944 through the GI Bill of Rights. The GI Bill was signed into law by President Franklin D. Roosevelt. This feature was designed to provide housing, and home ownership became a reality for millions of veterans.

More than 25 million veterans and service personnel are eligible for VA financing, this loan is attractive and has many advantages. Eligibility for the VA loan is defined as Veterans who served on active duty and have a discharge other than dishonorable after a minimum of 90 days of service during wartime or a minimum of 181 continuous days during peacetime. There is a two-year requirement if the veteran enlisted and began service after September 7, 1980 or was an officer and began service after October 16, 1981. There is a six-year requirement for National guards and reservists with certain criteria and there are specific rules concerning the eligibility of surviving spouses.

VA will guarantee a maximum of 25 percent of a home loan amount up to $104,250, which limits the maximum loan amount to $417,000. Generally, the reasonable value of the property or the purchase price, whichever is less, plus the funding fee may be borrowed. All veterans must qualify, for they are not automatically eligible for the program.

VA guaranteed loans are made by private lenders, such as banks, savings & loans, or mortgage companies to eligible veterans for the purchase of a home, which must be for their own personal occupancy. The guaranty means the lender is protected against loss if you or a later owner fails to repay the loan. The guaranty replaces the protection the lender normally receives by requiring a down payment allowing you to obtain favorable financing terms.

 For those home owners interested in saving some money when they sell their home, "For Sale by Owner" may be the way to go. There are many resources available to assist For Sale by Owners and we'll duscuss a few and how to proceed.

Obviously to sell a house, a home owner must expose their property to the most buyers possible. Typically, home owners will post a sign, run an ad occasionally and hold the property open on weekends once in a while. The reality is that all this and more needs to be done.

Firstly, open houses are the best way to expose your home to potential buyers. How else will they ever be able to see the inside? Often times the outside of the home doesn't do the inside justice. Home buyers that are just starting to look for their own place, will typically drive a few favorite neighborhoods to see what's available. They may see your FSBO (for sale by owner) sign, but if there are ten other properties in the area open to the public, they may never get a chance to look at yours. What will probably happen is that they will drive their chosen area and walk into a Realtors open house, and end up working with an agent.

There are very few real estate agents that will work with FSBO's. It's not the Realtors fault. Let me give you the the straight skinny... generally, people offering their home for sale by owner are often times on the moon with their expectations. They don't have a clear understanding of what it takes to sell a home. There are so many properties on the market currently that a real estate agent can't stop to educate a stuborn seller on contracts, attorneys, counter offers and more in order to sell this persons home.

For sale by owners wanting to sell their home need to get a few books on the topic and read up. The sale is not going to happen by itself. For goodness sake, you may save $10,000 or more, why wouldn't you read a book about it. You have to invest your time to save the money. Make sure you pay attention to the disclosure section of the how to book, this section will keep you out of court.

I'll give you a few tips here on what you'll need to do to sell your home For Sale By Owner:

Lot's of open houses. Every weekend, Saturday and Sunday- you need to keep it open for drive-bys. Some weekends you may not get any people and on others you may get ten couples. All you need is one offer.

Six months of classified advertising in the local paper. For sale by owners will try this for one or two weekends and find that it didn't work and stop. The truth is that it's not that expensive, and being in the "open house" section of the paper is an important tool to getting buyers to come by.

You can also advertise on the internet. RealestateloanS.com has just created a property listing site for all property sellers or brokers that would like to sell and have their property looked at by a huge national and international market. You can also list your home on other internet sites. Do a search on "for sale by owner" and see what comes up as internet resources.

Putting you're property on the MLS through a discount broker is an option but not always a good way to spend your money. Discount brokerages and full service realtors are like oil and water. No self respecting agent would show a home through an MLS listing service or discount broker. If you are utilizing a discount broker to get on the internet, thats one thing. If you are doing it to attract Realtors, it probably won't happen.

Create lots of color fliers so that you'll have something nice to give shoppers when they come through your home during the open houses. Home shoppers are avid collectors of information and they will look at the nicest fliers most. Make sure all the most important information is on the flier.

Do you have a lender that will prequalify buyers? It may be a good idea to have a lender be available in case you do get a buyer. It would be a shame to tie up the property for a buyer, that you find out doesn't qualify eight weeks later. Some lenders can also give you some great support to sell your home, including loan programs that will support your sale and attract buyers.

Call me for information on Chicago real estate, for sale by owners, fsbo, va loans, referrals for real esate brokerages, home builders and homebuyers.

The VA Jumbo Loan:

On October 10th, 2008 President Obama signed into law the Veterans Benefit Improvement Act of 2008. The law allows $0 down payment VA loans in certain counties to go up to $729,750 for loans closed through December 31, 2011.

The loan amount can be $729,750 but the purchase price can be much higher. For instance a borrower can purchase a home valued at $1,000,000. and put down the difference between the $729,750 and the $1,000,000.

Most counties around the country though are not in a high cost area and will be limited to a loan amount of $417,000.

Ask your loan officer if you are in a high cost or low cost area.