What are the Key Differences Between Getting an FHA Loan and a VA Loan in San Diego?

As a first-time buyer in San Diego, CA, you may be on the fence and deciding between an FHA and VA loan.

You’ve come to the right place.

These two popular government-backed loan products can be an excellent choice for qualified homebuyers. While each has unique features and benefits, choosing one would boil down to your financial situation and specific needs.

Let’s take a close look at what these loan programs have to offer and what sets them apart.

Why should you consider government-backed loans like the VA and FHA?

Suppose you are one of those homebuyers in San Diego who is having difficulty qualifying for a conventional loan. In that case, government-backed mortgages like the VA and FHA are great alternatives, especially for first-time homebuyers.

For borrowers with low income and not-so-good credit, you may have a better chance of getting a loan by applying for a VA or FHA loan.

A VA loan from Five Fifty Financial is insured by the government, which means you’ll get more attractive terms, better interest rates, and more lenient credit requirements than traditional loans.

What are VA loans?

The U.S. Department of Veterans Affairs insures VA loans. VA loans have been a blessing to eligible military members who have served our country.

Suppose you’re interested in knowing the benefits of getting a VA loan. In that case, the top reasons why borrowers choose a VA is because they offer competitive interest rates and also require no downpayment. 

Having no down is good news for many since not having enough for a downpayment is why many fail to buy a home.

What are FHA loans?

FHA loans are mortgages insured by the Federal Housing Administration and require a lower downpayment than conventional loans. You can get an FHA loan with a 3.5% down payment if you have a credit score of 580.

Applicants with low credit scores also have a better chance of getting approved.

An FHA loan is a popular choice if you have a low to moderate income.

What’s the difference between an FHA loan and a VA loan?

Eligibility Differences

VA loans are exclusively available to veterans, military service members, and their spouses, while FHA loans are ok for anyone who meets the income and credit score requirements.

Mortgage Insurance

You don’t pay for mortgage insurance when you choose a VA loan, meaning thousands of dollars are saved in the long run.

With an FHA loan, you need to pay both an upfront and annual mortgage insurance premium. This can significantly add to the cost of the loan over time.

Down Payment Requirements

The VA trumps the FHA regarding down payment requirements since they require no downpayment at all.  On the other hand, FHA loans ask for a 3.5% minimum down payment of your purchase price.

If you are buying a home worth $300,000, you need to put down $10,500 if you are getting an FHA loan. If you have a credit score lower than 580, FHA lenders may require a 10% down or $30,000. 

Credit Score Requirements

FHA loans have more lenient credit score requirements, while VA loans don’t have any official credit score requirements. 

For an FHA loan, you need at least a credit score of 580 to qualify. If you have scores lower than 580, lenders may require a 10% downpayment.

VA loan lenders look at a borrower’s overall financial situation, like a person’s debts, income, and credit history.

Rates

Both FHA and VA loans offer competitive rates compared to conventional loans. VA loans have a slight edge over FHA loans for better interest rates.

To leverage for better FHA rates, you can improve your credit score or save for a larger downpayment when applying.

What is the right loan product for you? An FHA or a VA loan?

FHA loans have similarities and differences. You can get an FHA loan even if you have low credit, while a VA loan doesn’t have a minimum credit score requirement. 

The bottom line when choosing a VA loan in San Diego or an FHA loan would depend on your situation and specific needs.

Five Fifty Financial of San Diego can help guide you through the decision process and help you choose the best loan that fits your requirements.

Give us a call or send us a message today!

Our VA loan experts would be glad to help you get started.

* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.