FHA loans are targeted towards those who might not otherwise be able to afford a home, while VA loans are specifically available to those who are or have served in the military. Though both are government-back mortgage loans popular with first-time home buyers, the loan that's best for you will depend on your finances and particular needs.

While both are government loans, the government support does not mean that the government makes the loans—banks or mortgage lenders do. The government merely insures these loans, lowering the lender's risk and allowing them to provide more appealing terms to borrowers, such as lower interest rates or less strict credit standards.

The

home

and

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super app

Jerry

is has put together this handy guide for understanding FHA and VA loans, so you can learn which will suit you the best.

Who funds FHA and VA loans?

While both loans are considered government-backed mortgage loans, they have different specific backers.

The Federal Housing Administration, which is part of the U.S. Department of Housing and Urban Development, backs FHA loans. This means that if you default on an FHA loan, the FHA will pay your lender the outstanding debt.

VA loans are backed by the U.S. Department of Veterans Affairs and are benefits offered to anyone who has served the county. Active duty service personnel, National Guard and Reserve members, veterans, and some surviving spouses are among those who may be eligible for VA loan benefits. You can check whether or not you’re eligible at the

VA’s official site

Property types

Both FHA and VA loans can be used to purchase or refinance the borrower’s primary residence.

A second home, a vacation home, or an investment property will not be supported by either loan.

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Loan limits and down payments

As with many loans, FHA and VA loans may have loan limits or minimum down payment requirements. Loan limits reflect the maximum amount of money a borrower is permitted to borrow, whereas a down payment is the amount of money you contribute to the purchase of a house.

FHA

The limit for FHA loans ranges from approximately $420,000 in low-cost areas to $970,000 in high-cost areas, but this will vary depending on where exactly you live.

The minimum down payment for an FHA loan is 3.5%.

VA

For fully-eligible borrowers, loan limits were repealed in 2020. However, if the borrower has any other active VA loans or has defaulted on a VA loan, they are still subject to borrowing limits.

These existing limits ranged between $647,000 and $970,000, depending on the area the borrower is looking for housing.

VA loans don’t usually require a down payment.

Credit score criteria

Your credit rating has an impact on whether or not you are eligible for a loan, how much you can borrow, and what interest rate you will pay.

FHA

For an FHA loan, you must have a credit score between 500 and 579 to be eligible for a down payment of at least 10%.

To qualify for a down payment of around 3.5%, you’ll need a credit score of at least 58.

VA

There is no minimum credit score requirement for VA loans, but lenders typically have their own requirements.

It’s best to aim for a credit score in the mid-600s for the highest chance of approval.

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Debt-to-income ratios

Your debt-to-income ratio measures the percentage of your gross monthly income that you dedicate to debt payments.

FHA

For FHA loans, the maximum debt-to-income ratio is 50%. However, this threshold may be lowered depending on additional factors, like credit score, marital status, employment history, and more.

VA

The average debt-to-income ratio for VA loans sits at around 41%—anything exceeding that may be subject to further scrutiny by lenders.

Mortgage insurance, fees, and rates

Mortgage insurance compensates the lender if you default on your loan. Depending on the type of loan, you will need to factor in this expense when you’re applying for a mortgage.

FHA

Mortgage insurance is required for FHA loans.

You will pay an up-front insurance premium, or charge, as well as a monthly insurance premium applied to your monthly mortgage payment. Borrowers also can choose to incorporate the upfront costs into their FHA loan.

With a mortgage, you’ll have to pay back interest. The average 30-year fixed interest rate for FHA loans sits at around 2.99%.

VA

VA loans don’t require mortgage insurance. However, a one-time VA funding charge, which ranges between 1.4% and 3.6% of the loan amount, must be paid by the borrower.

Loans made through the VA typically offer cheaper interest rates than other credit options. The average fixed rate for a 30-year VA loan is 2.72%.

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Taking out loans for your home can seem like an especially daunting process, but if you know where and how to look, it’s made all the easier. While searching for home loans, you should also secure yourself

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Is a VA loan better than an FHA loan?

The type of loan that is right for you will depend on your circumstances.

If you qualify, a VA loan may be a better option than an FHA loan because VA loans allow borrowers to purchase a house with no money down and no mortgage insurance. However, FHA loans can be a good choice for individuals with bad credit or low income.

If you qualify for both, it’s a good idea to get a quote for an FHA or VA loan to determine which one is right for you.

Are spouses of military members eligible for VA loans?

To get a VA loan, you'll need a Certificate of Eligibility (COE) to prove to your lender that you qualify as the spouse of a veteran.

Check the

VA's website

to see whether you may qualify for a COE.

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