Buying a home is an exciting milestone in life. However, the process can also be daunting, especially when it comes to securing financing. Two popular mortgage options for homebuyers are VA and FHA loans. These government-backed loans offer more flexible eligibility requirements than conventional mortgages, making homeownership more accessible. If you’re considering a VA or FHA loan here’s a comprehensive overview of their key requirements.
VA Loan Requirements
VA loans are issued by private lenders but insured by the Department of Veterans Affairs They offer significant advantages for eligible borrowers, including
- No down payment required
- No mortgage insurance required
- Lower interest rates than conventional loans
- More relaxed credit score requirements
To qualify for a VA loan, you must:
- Be an active duty service member, veteran, reservist, or qualifying military spouse
- Have sufficient income and assets to meet the lender’s requirements
- Have a VA eligibility certificate (Certificate of Eligibility)
- Occupy the home as your primary residence
The VA does not set a minimum credit score requirement, but most lenders look for a score of at least 580 to 620. Your debt-to-income ratio can be as high as 57% in some cases, depending on your credit profile.
Unlike conventional loans, VA loans do not require a down payment or mortgage insurance. This helps make homebuying more affordable for military families. However, you can still make a down payment if desired.
FHA Loan Requirements
FHA loans are backed by the Federal Housing Administration. Like VA loans, they offer flexible qualifying guidelines:
- Low down payment of 3.5%
- More lenient credit score requirements
- Options for gift funds and downpayment assistance
To be eligible for an FHA loan, you must:
- Have a minimum credit score of 580
- Put down at least 3.5% of the purchase price
- Occupy the home as your primary residence
- Keep your debt-to-income ratio below 43% in most cases
FHA loans have limits on the amount they will finance. The baseline conforming loan limit for 2023 is $367,000 for single-family homes in most areas. Higher limits apply in more expensive housing markets.
Both FHA and VA loans require you to pay for mortgage insurance if your down payment is less than 20%. On an FHA loan, this insurance is called MIP and lasts for the life of the loan. On a VA loan, it’s called the VA funding fee and can be rolled into the loan amount.
Comparing VA and FHA Loans
VA and FHA loans share similarities that set them apart from conventional financing:
- Lower credit score requirements
- Lower down payments required
- More flexible debt-to-income ratio guidelines
However, there are also key differences between these two mortgage options:
Down Payment
- VA loans – No down payment required
- FHA loans – Minimum 3.5% down
Mortgage Insurance
- VA loans – VA funding fee may apply
- FHA loans – MIP required
Credit Score Requirements
- VA loans – Typically 580 to 620
- FHA loans – Minimum 580
Debt-to-Income Ratio
- VA loans – Up to 57% in some cases
- FHA loans – Up to 43% typically
Loan Limits
- VA loans – No baseline conforming loan limit
- FHA loans – Baseline limit of $367,000 in 2023
Occupancy Requirements
- VA loans – Must be primary residence
- FHA loans – Must be primary residence
When weighing VA vs. FHA loans, consider your financial situation, credit profile, and goals. VA loans give veterans and military families access to a true no-down-payment option, while FHA loans offer flexibility and low down payments to any qualified applicant.
The Loan Process
Now that you know the basic eligibility guidelines, let’s look at the general process to obtain a VA or FHA mortgage:
1. Check your credit and get pre-qualified
Before applying, confirm you meet the minimum credit score requirements for VA (580 to 620 typically) or FHA (580) loans. Getting pre-qualified gives you an early estimate of the loan amount, rates, and payments you may qualify for.
2. Determine your budget and down payment amount
VA loans don’t require a down payment, but you may still opt to make one. FHA loans need at least 3.5% down. Review your finances to decide how much you want to put down upfront versus financing.
3. Find a lender and apply for financing
Work with a lender familiar with VA/FHA loan guidelines. They’ll help you choose the right loan program and walk you through the application process.
4. Get pre-approved
After applying, your lender will fully verify your income, assets, employment, and credit. If approved, you’ll receive a pre-approval letter stating the loan amount and terms.
5. Make an offer and get an appraisal
A pre-approval letter shows sellers you’re a serious buyer. Your lender will also arrange for an appraisal to confirm the property is worth the sale price.
6. Final underwriting and loan approval
In underwriting, the lender does a final review before issuing a clear to close. This confirms your eligibility and that all conditions have been satisfied.
7. Closing and move in!
At closing, you’ll finalize paperwork and the home officially becomes yours! Schedule your move, and get ready to enjoy your new space.
Purchasing a home is easier with the right loan. VA and FHA mortgages help qualified buyers get into a home sooner with less cash needed upfront. If you’re eligible, be sure to explore these options when buying your next house or condo.
How to apply for FHA loan in Virginia
Each individual loan is different. To apply for an FHA loan in Virginia, contact one of our New American Funding branches in Virginia. The company’s loan officers will be happy to answer your questions about our products and help you complete the loan application process for an FHA loan.
You should already have a budget in mind when you contact your mortgage lender. Once you’ve found a lender, you can begin to collect the documents you need to apply for an FHA loan. You will need to provide your specific mortgage lender with certain information for approval.
This includes personal identifying information and proof of income. Examples include signed tax returns from the last two years, W-2’s or 1099’s also from the last two years, and a copy of your Social Security card. You will also want to gather any information regarding your current debts as well as extra income you receive.
You can use New American Fundings Virginia Mortgage Calculator to calculate your estimated mortgage costs.
What is a Virginia FHA Loan?
Building your dream life is hard, but New American Funding is here to help. For a lot of people, owning a home is large part of the American dream life. If your dream home is in Virginia, but you’re worried about your credit score or affording a high down payment, an FHA loan may be right for you. FHA loans were created in 1934 by the Federal Housing Administration. They are a valuable resource designed to help borrowers with less-than-perfect credit purchase a home. Since 1934, FHA loans have helped over 40 million people become homeowners.
The FHA is governed by the U.S. Department of Housing and Urban Development (HUD). This means FHA loans are guaranteed by the United States government. This makes FHA loans attractive to mortgage lenders because there is less risk of the lender losing its money. The FHA insures the loan and does not lend money directly to the borrower.
FHA loans are one of the best options available for first-time homebuyers. They are more accessible than Conventional loans. This makes them popular with a wide range of borrowers.
With lower down payments, lower credit requirements, and the option for financial assistance, buyers from all financial backgrounds may be able to qualify.
Get answers to your questions about Conventional loans vs FHA loans here.
The Good and BAD of FHA Loans | NEW FHA Loan Requirements 2023
What are the eligibility requirements for a VA-guaranteed home loan?
You must have satisfactory credit, sufficient income, and a valid Certificate of Eligibility (COE) to be eligible for a VA-guaranteed home loan. The home must be for your own personal occupancy. The eligibility requirements to obtain a COE are listed below for Servicemembers and Veterans, spouses, and other eligible beneficiaries.
What is the minimum credit score for a VA home loan?
The VA doesn’t specify a minimum credit score for VA home loans, but lenders can set their own thresholds. A minimum credit score in the mid-600s is a common requirement. The lowest score you can have and still qualify for an FHA loan is 500. But a score of at least 580 is required for a down payment of 3.5%.
What is the difference between FHA & VA loans?
Homes bought with FHA and VA loans must also meet the minimum requirements set by the HUD and the Department of Veteran Affairs, respectively. Both FHA and VA loans have lower down payment requirements than some other types of mortgages. FHA loans usually have a required minimum down payment of 3.5%.
What is the minimum down payment required for a VA loan?
No minimum set by VA, but 620 is a common lender requirement. 500 to 579 to qualify with minimum 10% down payment; 580 or higher to qualify for 3.5% down payment. Lenders will apply more scrutiny if DTI is over 41%. 47% or less, depending on credit score and other factors. Tend to be lower than for FHA loans. Tend to be higher than for VA loans.