1. The VA/FHA home loan guaranty is the actual loan. One of the most common VA home loan myths is also the most easily corrected; newcomers to the program sometimes mistake the VA home loan guaranty program for the loan itself. The VA backs the loan on the veteran's behalf but it does not issue loans, extend credit OR have the power to force a lender to do business with a borrower. In turn, FHA loans do not come directly from the FHA. The FHA guarantees home loans, with the goal of reducing the risk to lenders. With each agency,If a borrower is not qualified, the bank won't issue the loan.
2. Veterans are automatically entitled to get a VA home loan.A qualified vet is entitled to VA health care and compensation based on a VA determination of their status as a disabled veteran. When it comes to VA mortgages, eligibility for VA home loan benefits is no guarantee the veteran can get them. Vets have to be in military service for a minimum time before they can get a VA certificate of eligibility. Getting that certificate is only half the battle--if a veteran doesn't have a dependable record of on-time bill payments and a debt-to-income ratio under 41%, chances are good that a loan officer won't approve the credit application.
3. There are no credit requirements for VA home loans. VA loans depend on the borrower's actions when it comes to financial responsibility as much as they do getting that certificate of eligibility. The VA home loan benefit is conditional--much depends on the borrower's credit history, the record of dependable payments, and other determining factors. The VA cannot promise every VA loan applicant an approval.
4. There are less fees associated with a VA or FHA loan. Just as with a conventional loan, "reasonable and customary" mortgage loan fees can include appraisals, inspections, credit reports, document preparation fees and more. In addition, according to the FHA website "there are fees included in the processing of some loans that are not directly related to closing costs. Some of these include courier fees, wire fees, real estate broker fees, recording fees and recording taxes."
5. Sellers prefer VA and FHA loans. The truth is that the difference between VA/FHA loans and conventional loansas to what concerns the seller, is minimal. One realtor from Sacramento, CA put it best: "There is almost no difference between an offer from an FHA buyer and a conventional buyer. Both loans have guidelines that must be followed, and if you follow those guidelines the deal will close and you will get your house sold."
Though VA and FHA loans do have clear benefits for some homebuyers, there are also advantages to conventional loans. Ultimately, your realtor will explore your options with you, so you don't overlook opportunities or unnecessarily close the door on great offers that will close just as fast.
Sources: FHA.com; Zillow.com; VA.gov; Trulia.com. Photo credit: Freepik