October 3, 2023
There are several government-backed mortgage loan programs including FHA mortgage loans, VA loans, and USDA mortgages. What makes FHA mortgages different than VA or USDA home loans?
How FHA Home Loans Work
The FHA does not lend money to borrowers. Instead, it allows third party lenders who meet FHA standards to underwrite and process FHA mortgage loans, which have a percentage of the mortgage guaranteed by the government.
That makes the potential losses to the lender lower should a borrower default on the mortgage.
FHA home loans have lower credit score requirements, feature lower required down payments, and have borrower-friendly rules such as a requirement that there be no financial penalty for early payoff of the mortgage.
FHA loans are backed by the government, making them a better deal for the lender than conventional loans, and those loans can include FHA condo loans, FHA On-Time Close construction loans for building a house from the ground up, and mobile homes in addition to the more typical suburban homes some FHA borrowers purchase.
Why FHA loans Differ From VA and USDA Mortgages
FHA mortgages, USDA home loans, and VA mortgages are all government-backed home loans, but unlike FHA mortgages, VA home loans are restricted to qualifying military members, veterans, and certain surviving spouses of military members who have died.
VA mortgages are not open to the public; the qualifying military members who do take out VA home loans do so with no VA-required down payment.
No mortgage insurance is required by the VA, and you may qualify for a waiver for specific loan fees if the borrower is eligible to receive financial compensation from the VA for service-connected injuries.
How FHA Loans Differ From USDA Mortgages
FHA home loans are also quite different than USDA mortgages; the USDA home loan program offers no-money-down mortgages but only to those who financially qualify. In this case that means meeting need-based home loan standards with household income caps and other criteria.
In other words, those who do not have a demonstrated, documented financial need may not qualify for a USDA home loan.
FHA home loans are NOT need-based, are not restricted to military members or those within a certain income range, and do not require the borrower to meet loan approval standards above and beyond being able to realistically afford the loan, the down payment, etc.
FHA home loans are offered to any U.S. citizen who can meet the financial qualifications for FICO scores, employment history, loan repayment history, and other qualifiers.
There are no income caps on FHA mortgages, no requirement for you to be a first-time home buyer, etc.
Talk to a loan officer today about your purchase loan or refinance loan needs. There’s an FHA mortgage for you.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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