Are VA Loans Better Than Conventional, FHA, or USDA Loans?

A common question myself and many loan officers face when working with someone who is eligible for a VA loan is: “are VA loans better than conventional or FHA mortgages?” Since I’m going to answer this question, I should throw in the comparison of VA loans to USDA loans too.

Before I start with our comparison let’s look briefly at the USDA loan. This mortgage is only for homes located in a rural area. They do not require any down payment and they do not have mortgage insurance (private mortgage insurance or PMI – aka as mortgage insurance premium as named with FHA loans) so they are a great loan product. The compete very nicely with the VA loan for no money down and no PMI, but again they are only for rural areas.

Now to move on to find out which mortgage is best.

The best way to answer this question is to consider two things: your future and the amount of money available for a down payment that you have.

First let’s start with the future. No one has a better refinance product than the VA’s streamline refinance program. But you must already have a VA loan to take advantage of this program. In a nutshell, if you have a VA mortgage already in place and VA mortgage rates go lower than your current VA mortgage interest rate, then you can essentially refinance with very little required on your end. The bottom line is that with a the VA streamline refinance, if you can lower your payments then it is likely the VA will let you do the mortgage as long as you have kept your mortgage payments up to date during the last 12 months.

Next, let’s look at your available down payment. If you have enough to put 20% down, then the best way to go is with a Fannie Mae or Freddie Mac conventional mortgage. After that it is a draw as to which mortgage is best so in one way or another VA, FHA and USDA all tie for second.

If you are able to put somewhere between 5-10% down, then it could be a toss up between VA and USDA because neither of these programs have PMI (private mortgage insurance) and FHA and conventional mortgages will have PMI which will make them more expensive than the VA and USDA loan options.

If you are not putting any money down, then the USDA loan is good if you are going to be buying a home in a rural area – there is no VA Funding Fee which is essentially the difference in expenses between the VA and USDA programs. If you are a going to be buying a home in a urban area and want to go the no down payment option then you will have to look at the VA mortgage if you are eligible.

This just about covers the whether VA loans are better. The best loan really depends on where you are looking to buy a home, what kind of money you have for your down payment and what does your future look like in terms of refinancing. Above all else, check with multiple lenders to compare different programs and make sure you ask questions about things you don’t understand.