Both Federal Housing Administration (FHA) and Veteran Affairs mortgage loans are backed by the government and both are good alternatives to conventional loans for people with lower incomes. While the rules of handing out these types of loans are written by the government, it is still up to the individual lender to decide if you qualify, based on their own set of rules, which are usually stricter than the government’s guidelines.
Similarities and Differences Between FHA and VA Mortgages
Both types of mortgage loans were developed by the United States government in order to aid people who don’t possess the means to secure a conventional mortgage loan. Buying a home if you have low income is extremely difficult so, through these two types of loans, the government gives more people the chance of becoming home owners. People who would normally be refused a conventional loan by banks and credit unions can qualify for an FHA or VA loan with a much lower credit score. The government doesn’t hand out the loan, but insures it against a default, giving people who are regarded as a high default risk the possibility of buying a home.
The biggest difference between them is that, in order to qualify for a VA loan, you have to be an active-duty military member, a veteran, or a surviving spouse. So a person who is serving or has served in the military can qualify for both types of loans, but someone who hasn’t served can only qualify for a FHA loan if he or she meets the other requirements.
Other differences between the FHA and VA mortgages have to do with the applicant’s income, the down payment, and mortgage insurance. FHA loans have more restrictions when it comes to someone’s income than VA loans do. The money that you will have to put down as a down payment is also a big difference between FHA and VA mortgage loans. While FHA loans require a minimum 3.5 percent down payment, VA mortgage loans do not have a down payment requirement. Lastly, you will be required to pay mortgage insurance for at least 5 years, if you choose an FHA loan, while VA loans don’t have this requirement.
Current FHA Mortgage Rates
Most lenders offer 3.5 percent interest rates on 30-year fixed rate-mortgage loans, which means that FHA mortgage rates remain near historic lows. Also, most economists predict that FHA rates will remain under 4 percent for 2013. Interest rates for 15-year fixed-rate mortgage loans also remain low, in the neighborhood of 2.70 percent.
FHA mortgage rates were around 3.90 percent last year at this time, hitting a historic low at the beginning of 2013, and they remained in that range since then. Freddie Mac‘s economists say that they expect FHA mortgage rates to reach 3.75 percent by the end of the year.
Current VA Mortgage Rates
VA mortgage loans are backed by the government through the Department of Veterans Affairs, but they are not the ones who set the interest rates. VA mortgage interest rates are set by each lender who is approved by the VA. There are many factors that have an influence on what your VA mortgage rate will be, so working with a VA specialist is recommended.
Current VA mortgage rates hover around 3.25 percent for a 30-year fixed-rate VA mortgage loan and around 3 percent for a 15-year fixed-rate VA mortgage. The short-term prediction is that VA mortgage interest rates will decrease by a small percent, but they are at near record lows right now, so it is up to you if you want to risk it and wait longer.
Familiarizing yourself with the current FHA and VA mortgage rates can help you spot a good deal when the time comes. Choosing between an FHA and a VA mortgage loan depends mostly on your individual situation and your future plans. The current mortgage rates are fairly close for both loans, but you need to take into account all of the characteristics of each loan and decide to go with the one that best fits your needs.