Should A Veteran Use An FHA Loan Instead Of A VA Loan?

VA home loans are an important benefit for eligible, qualified borrowers. But is there ever a time when a veteran should consider using FHA home loan options instead of the VA loan program? That choice is up to the individual borrower but some believe in at least exploring the option.

That’s especially true when it comes to home loan refinancing. There are many reasons to refinance in general--changing the term of your current mortgage, taking advantage of lower interest rates, or tapping into the equity of the property.

There can be many reasons why a borrower might need to refinance into an FHA or VA home loan for eligible applicants.

Those who qualify for VA refinancing (veterans or currently serving military members who have been in uniform for the required minimum service) can refinance from a conventional loan to a VA mortgage and eliminate private mortgage insurance requirements. Having no PMI is a very attractive option for veterans. Those who refinance from conventional to FHA mortgages were once required to have a specific loan-to-value ratio (20% or better) to eliminate private mortgage insurance. But FHA loan rules have since changed and you may find PMI on an FHA home loan is unavoidable.

Borrowers who want to change the term of their original loans can also refinance into an FHA or VA mortgage when eligible to do so. VA loans feature 15-year and 30-year terms and have no penalty for early payoff. That’s an important factor for anyone who not only wants to get into a shorter loan term but also has plans to pay more than the monthly minimums to speed up the final payoff date.

What about home equity lending? Does the VA have an option here? In some ways, conventional loans are more flexible in this area, but the FHA does offer cash-out refinance and Home Equity Conversion Mortgages also known as HECM loans. FHA HECMs are for borrowers aged 62 and older, but cash-out refinancing is available to qualified borrowers of any age.

The VA does not offer a home equity refinance, but does allow qualified borrowers to apply for cash-out refinancing. These loans require occupancy, a credit check and other typical refinancing loan underwriting. You can still cash in on the equity built up in your home under VA cash out refinancing loans, but there is no reverse mortgage option under the VA.

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