FHA vs VA Loan: Side by Side

Federal Housing Administration (FHA) loans and Veteran Affairs (VA) loans provide money to people that may have trouble receiving traditional, private company loans. FHA and VA loans serve similar purposes, but differ in things such as who they are intended to help, how they specifically work, and the ways that they are obtained. 

Similarities

FHA and VA loans are both issued by banks or other nationally recognized, qualified lenders; the government is not the lender in either case. The different agencies both provide insurance to the private lenders in the case that the borrower defaults. Both types of loans are meant to help people purchase homes or property that they otherwise could not afford to buy. Whether a borrower is applying for a FHA loan or a VA loan, there is no guarantee that the borrower will receive money. The private lender decides whether or not a borrower is a good risk to take on. 

With both types of loans, the borrower can renegotiate the terms of the loan along the way. Depending on the market interest rate, the borrower’s credit, and other circumstantial facts, a borrower can reduce monthly payments on either a FHA or VA loan through modification or consolidation. 

Differences

FHA loans are meant to help low income people purchase homes and avoid foreclosure. VA loans are meant to help veterans who have served on active duty, or their surviving spouses, purchase a home without having to put any money down.

Whereas FHA loans do not necessarily provide money for a down payment, VA loans do. FHA loans make it possible for people to obtain loans because the Federal Housing Administration gives the lender security. VA loans make it possible for veterans to obtains loans because the Department of Veteran Affair’s insurance policy replaces the security that a normal down payments provides to a lender. 

FHA loans come in many forms and the terms are entirely negotiable. Recipients of FHA loans can opt for adjustable rate mortgages, which allow the borrower to benefit from an interest rate that is lower than usual for the first few years of the loan. After a short period, the borrower then will pay an increasing interest rate. FHA loans can also have fixed rates.  VA loans usually have fixed rates, which means that the interest rate does not change over the term of the loan. Interest rates on fixed VA loans are usually lower than those on fixed FHA loans.