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Common Inputs
FHAFHA Loan
• UFMIP: 1.75%
• Annual MI: 0.55-1.3%
$0
VAVA Loan
• No PMI required
• Funding fee: 2.3-3.6%
$0
FHA vs VA Loan Comparison
| Feature | FHA Loan | VA Loan |
|---|---|---|
| Minimum Down Payment | 3.5% | 0% (No down payment) |
| Credit Score Required | 580+ (some lenders 620+) | Varies by lender (typically 640+) |
| Mortgage Insurance (MI) | Yes - UFMIP 1.75% + Annual | No PMI |
| Upfront Funding Fee | None | 2.3-3.6% (one-time) |
| Loan Limit | Up to $1.45M (varies by county) | No limit for eligible veterans |
| Property Type Restrictions | Owner-occupied, primary home | Owner-occupied, primary home |
| Interest Rates | Slightly higher than VA | Usually lower (VA preferred by lenders) |
| Seller Paid Closing Costs | Max 6% of purchase price | Max 4% of purchase price |
| MI Removal | Can be removed at 20% equity | N/A (no MI) |
| Property Appraisal | Standard FHA appraisal | VA appraisal (often more thorough) |
Understanding FHA Loans
What is an FHA Loan?
An FHA (Federal Housing Administration) loan is a mortgage insured by the federal government. It's designed to help borrowers with lower credit scores or limited down payment savings buy a home. FHA loans are popular for first-time homebuyers.
FHA Loan Requirements
- Minimum Down Payment: 3.5% (can be lower with compensating factors)
- Credit Score: 580+ (though most lenders prefer 620+)
- Debt-to-Income Ratio: Maximum 50% (43% preferred)
- Property Type: Must be primary residence, 1-4 family homes, condos
- Property Appraisal: FHA-approved appraiser required
- Mortgage Insurance: Always required (even at 20% down)
FHA Mortgage Insurance Costs
- UFMIP (Upfront): 1.75% of loan amount, added to loan
- Annual MI (Down < 10%): 0.80-1.30% of loan amount
- Annual MI (Down ≥ 10%): 0.55-0.80% of loan amount
- MI Duration: Until payoff (if down < 10%) or 11 years (if down ≥ 10%)
FHA Loan Advantages
- Low down payment requirement (3.5%)
- Flexible credit score requirements
- Easier approval for first-time buyers
- Standard interest rates
- Seller can pay up to 6% of closing costs
FHA Loan Disadvantages
- Mandatory mortgage insurance (PMI) for entire loan
- Loan amount limits (varies by county)
- Upfront mortgage insurance premium (UFMIP) of 1.75%
- Stricter property requirements
- Requires FHA-approved appraisal
Understanding VA Loans
What is a VA Loan?
A VA (Veterans Affairs) loan is a mortgage guaranteed by the U.S. Department of Veterans Affairs. It's exclusively available to eligible military service members, veterans, and surviving spouses. VA loans require no down payment and have lower interest rates than conventional loans.
VA Loan Eligibility
- Active Duty Service Members: 181+ days of active service
- Veterans: Honorably discharged
- Surviving Spouses: Not remarried, spouse died in service or service-related disability
- National Guard/Reserves: 6+ years of service (typically)
- Certificate of Eligibility (COE): Required proof from VA
VA Loan Features
- Zero Down Payment: Can buy with no money down
- No PMI: No mortgage insurance required
- Funding Fee: One-time fee (2.3-3.6%) added to loan
- No Loan Limits: Can borrow unlimited amounts
- Better Interest Rates: Usually 0.5-1% lower than FHA/conventional
- Entitlement: Full entitlement can be reused multiple times
VA Funding Fee Details
- 2.3%: Regular loan with 5%+ down
- 3.6%: No down payment loan
- 1.25%: Subsequent use of entitlement
- 0%: Disabled veterans (100% service-connected) may be exempt
VA Loan Advantages
- Zero down payment required
- No mortgage insurance premiums
- Lower interest rates than FHA/conventional
- No prepayment penalties
- Seller can pay up to 4% of closing costs
- Can reuse entitlement
VA Loan Disadvantages
- Limited to military/veterans only
- Funding fee (2.3-3.6%) adds to loan cost
- Requires VA appraisal (can be more thorough)
- Property must meet VA standards
- Lender limited by VA guidelines
Frequently Asked Questions
Which loan is better, FHA or VA?
If you're eligible for VA, it's typically better due to no down payment and no PMI. If not eligible, FHA is good for low credit/down payment. Compare monthly costs in each situation.
Can I remove VA funding fee?
No. VA funding fee is permanent and cannot be removed. However, 100% disabled veterans may be exempt from paying it.
Can FHA mortgage insurance be removed?
Yes. If your down payment was 10%+, MI can be removed at 11 years or 80% loan-to-value. If down payment was less than 10%, MI stays for life of loan.
What's the difference in rates?
VA loans typically have 0.5-1% lower rates than FHA. Over 30 years, this saves tens of thousands of dollars despite the funding fee.
Can I use VA loan multiple times?
Yes. Your VA entitlement can be reused multiple times. However, subsequent uses have lower funding fees and your full entitlement may be tied up in previous loans.
What's a COE for VA loans?
Certificate of Eligibility. Proof from VA that you're eligible. You can get it from VA website, through your lender, or by submitting documents to VA.
Can non-primary residences use these?
No. Both FHA and VA loans require the property to be your primary residence. Investment properties and second homes don't qualify.
How do funding/UFMIP costs affect monthly payment?
Both are added to the loan amount, so they increase your monthly principal+interest payment. Over 30 years, the interest on these fees can be significant.
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