Summary: Military borrowers have three major loan programs to choose from when they want to secure a home loan: FHA, VA, and conventional loans. Read on to find out which loan program is best suited for you.
Washington is one of the top seven states in the country when it comes to military population. That means there are a lot of military folks in the state who could benefit from using a VA loan to buy a house.
But VA isn’t the only loan option for military home buyers in Washington. There are other programs available as well, and they all have their own unique features and benefits.
Today, we’ll look at the key differences between FHA, VA and conventional loans, from the perspective of a military home buyer in Washington.
FHA, VA or Conventional: What’s Best Loan Option for Military Home Buyers?
Military home buyers in Washington State have several different loan options to choose from. This includes the “big three” mortgage programs: Federal Housing Administration (FHA), Department of Veterans Affairs (VA), or a conventional home loan that’s not backed by any government agency.
So which of these is best loan option for a military home buyer in Washington — FHA, VA or conventional loans? That will depend on your financing goals, your budget and other factors. Here are the key features and differences between the three options:
VA loans at glance:
- Loans are partially guaranteed by the U.S. Department of Veterans Affairs (VA)
- Offers financing up to 100% (no down payment)
- No more loan limits apply in 2020, meaning borrowers can still take advantage of zero money down regardless of loan size (but will still need to get approved with their lender)
- Borrowers can usually avoid paying private mortgage insurance
- VA funding fee ranges from 2.3% to 3.6% for borrowers who make no down payment
- VA funding fee can fall outside of this range for some borrowers
- Offers relaxed qualifying standards when compared to conventional loans
- Borrower must obtain a Certificate of Eligibility (COE) from the VA in order to apply
FHA loans at a glance:
- Loans are insured by the Federal Housing Administration (FHA)
- Offers financing up to 96.5%, for a down payment as low as 3.5%
- Upfront mortgage insurance payment of 1.75% for most home buyers
- Annual mortgage insurance premium comes to 0.85% for most FHA borrowers (though it ranges from 0.45% to 1.05%)
- Relaxed qualifying standards when compared to conventional loans
- Borrowers must meet guidelines set by Department of Housing and Urban Development
Conventional loans at a glance:
- Loans are not insured or backed by the government (the definition of “conventional”)
- Offers financing up to 97% for some borrowers, for down payment as low as 3%
- Borrowers might have to make a bigger down payment in some cases
- Mortgage insurance is usually required when loan-to-value ratio rises above 80%
- Qualification criteria can be more strict than for FHA and VA (though not always)
No Down Payment, No Mortgage Insurance
For a lot of military home buyers in Washington State, the VA loan program can be a better option than FHA or conventional. That’s because it allows eligible borrowers to purchase a home with no money down, while also avoiding mortgage insurance in most cases. Those are two big advantages, and they account for the popularity of VA mortgages.
If you compare FHA and VA (the two government-backed programs), you’ll find some clear advantages on the VA side due to the 100% financing that’s available. Home buyers who use the FHA program also have to pay for mortgage insurance, but that added expense can usually be avoided with the VA loan program.
And with the recent passing of the Blue Water Navy Vietnam Veterans Act of 2019, there are no more loan limits for eligible veterans to have to adhere to in order to get away with not paying a down payment.
Before January 1, 2020, veterans could only take advantage of a zero down payment if their loans were under the stipulated loan limit for that year and in their respective county. But as of the start of 2020, these loan limits are no more (with the exceptions of borrowers who already have more than one VA loan on the go or who have defaulted on a VA home loan in the past).
When comparing VA loans to conventional, the mortgage insurance issue comes up again. If you make a relatively low down payment for a conventional (non-government-backed) home loan, you’ll probably end up having to pay for private mortgage insurance. But VA borrowers can usually avoid that extra cost.
Want to Apply For a Mortgage in Washington?
Sammamish Mortgage is a Bellevue-based mortgage company serving the entire state of Washington, as well as Colorado, Idaho, and Oregon in the Pacific Northwest. We have been offering several mortgage programs to borrowers since 1992, and strive to help every borrower make their dreams of owning a home come true. Contact us today if you have questions about applying for a mortgage.