Most lenders will need a minimum credit score of 620 in order to approve you for a VA loan. Conversely, an FHA loan may only require a credit score of 580 or even lower. It's one of the reasons FHA loans are popular with people with bad credit or no credit. Both the VA and FHA programs represent excellent forms of financing, but VA mortgages are simply a better financial offer for most eligible borrowers.
Therefore, credit and income requirements are more stringent for conventional compliant mortgage loans than for mortgages insured by the FHA and those guaranteed by the VA. If you're an eligible veteran, VA loans offer a way to own a home without needing the borrower to make a down payment. This gives borrowers an opportunity to become homeowners without exhausting their emergency fund or retirement account. And if you qualify for an exemption from VA funding fees, then a VA mortgage can easily be the most affordable type of mortgage.
You can get a conventional loan to buy a home to live in, or for an investment property or a second home. It's generally easier to qualify for government-guaranteed loans if you don't have perfect credit. So before you start comparing lenders, mortgage rates and charges, here's what you need to know about conventional loans and government-guaranteed mortgages, such as FHA loans and VA loans. This is because there is a general perception that government-backed loans are more difficult to work with.
FHA-insured loans can only be used to finance primary residences, not investment or vacation properties. Compared to conventional loans, both FHA and VA loans tend to have slightly better rates, and VA loans usually have a slight advantage over FHA loans in terms of the most attractive rates. The initial funding fee for VA loans is usually higher than the initial mortgage insurance premium for FHA loans, but unlike the FHA, the VA doesn't have an annual premium, which means substantial savings. Loans for Alaska, California and Hawaii have special considerations when it comes to what is considered jumbo and may be priced separately.
FHA loans include two mortgage insurance charges: an initial insurance premium similar to the VA funding fee and an annual mortgage insurance premium based on the remaining balance of the loan. Both FHA and VA loans can make it easier to own a home for those who are struggling to save for a down payment, but if you qualify for both, the VA loan is the clear winner in this category. A big difference between FHA loans and VA loans is that VA loans don't require mortgage insurance, while FHA loans do. The annual MIP is between 0.45 and 1.05% of the loan amount, depending on the term of the loan, the amount borrowed and the amount of the down payment.
FHA loans are a good option for borrowers who don't qualify for other types of mortgages because credit rules are less stringent. Therefore, it can simplify refinancing an existing FHA loan to a new FHA loan, or from an existing VA loan to a new VA loan.