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Who Should Apply for FHA loans and VA Mortgages?

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FHA vs VA MortgagesWho should apply for FHA loans rather than take regular home loans, and are veterans better with FHA or VA mortgages? Let’s first look at why people apply for FHA mortgages, and then discuss the FHA vs. VA question.

FHA Loans

If your credit score is low and your credit record has a few blemishes, you may find it difficult to get a regular home loan at a decent price. You may be asked for a high down payment or your interest rate may be high – in fact, it will be high! You might be tempted by an interest-only mortgage, but where will that large final payment come from to pay off the principal?

An FHA mortgage might be available to you if your credit record is poor and your credit score (FICO score) is low. If your DTI (Debt to Income) ratio is higher than mortgage lenders would like and you have only a small down payment, then the FHA might offer you a mortgage.

There are pros and cons of such mortgages, although fundamentally, if you are not a veteran and you cannot get a regular mortgage, you should apply for a FHA mortgage. If you can put down a 3% deposit, and your loan is within the maximum set by the FHA, then you should be OK – given that your past history does not preclude you from getting any finance.

This includes a foreclosure within the previous 3 years, and a DTI of less than 29/41 (29% home ownership debt in relation to your income, and 41% total debt.) To get the exact figures for debt and income look up the HUD website and check the figures for your region.

FHA Loans vs. VA Mortgages

VA loans are lower than those offered by the FHA. If you are looking for a substantial loan of over $400,000, you might be able to negotiate a VA mortgage but you are more likely to get an FHA loan. Depending on your state, county and type of home, you can get an FHA loan ranging from a maximum of $417,000 to over $2 million. It is therefore impossible to provide a general figure.

VA loans tend to be lower, so if you need a sum larger than $417,000 then you should seek an FHA insured mortgage. Keep in mind that the FHA does not offer the loan itself; it insures it, so that lenders are safe to offer you the sum that the FHA will insure.

VA loans do not charge a Mortgage Insurance Premium, whereas FHA loans do. If you cannot afford a down payment, then a VA loan will suit you with its 0% down payment requirement in contrast to the 3% of the FHA.

Which is Best: An FHA or a VA Mortgage?

So which is best for you? Assuming that you need a mortgage loan of under $417,000, then if you are a veteran, the VA (Veteran Association) loan is possibly best for you. The interest rate might be higher, but your initial outlay is significantly lower in cash terms than a similar VHA loan. When comparing FHA loans vs. VA mortgages, you must make sure that you are comparing like with like; same amount needed and same deposit or down payment you can make.

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