Reason Using FHA Versus VA Mortgages By Veteran Borrowers
This BLOG On Reason Using FHA Versus VA Mortgages By Veteran Borrowers Was PUBLISHED On June 22nd, 2019
VA Home Loans are the best primary mortgage loan programs in the United States.
- To be eligible for VA Loans, borrowers need to be active duty and/or retired member of the United States Military with a Certificate of Eligibility
- A Certificate of Eligibility is also referred to as a COE
- Spouses of deceased eligible veterans may also be eligible
- The Department of Veterans Affairs, also referred to as The VA, sets the minimum lending guidelines on VA Home Loans
- The VA has very lenient mortgage guidelines versus other government and/or conventional loan programs
- The VA realizes that members of the U.S. Military often have less than perfect credit due to their deployment and/or often base transfers
- However, there are times for veterans in using FHA Versus VA Mortgages
In this blog, we will discuss the reason using FHA Versus VA Mortgages by veteran borrowers.
Reason Using FHA Versus VA Mortgages Due To Automated Underwriting System
The Automated Underwriting System also referred to as the AUS, is a sophisticated computer system that analyzes the borrowers’ credit and income profile in a matter of seconds and renders a decision.
- The AUS has an algorithm where it knows all of the minimum guidelines on all loan programs
- All VA, FHA, USDA, and Conventional Loan mortgage applications need to be submitted to the Automated Underwriting System
The AUS will render the following decisions:
- Approve/Eligible per AUS: A/E Per AUS means the borrower meets all loan program guidelines and has an automated underwriting system approval
- Refer/Eligible per AUS: R/E Per AUS means that the automated system seems to find the borrower eligible but cannot render an automated approval and is referring it to a human underwriter to underwrite the file via manual underwriting
- Refer With Caution means the automated underwriting system cannot render an automated underwriting system approval
VA and FHA Loans are the only two loan programs that will allow manual underwriting.
- There are many times where borrowers with not get an approval/eligible on VA Loans but the same borrower may get an automated underwriting system approval on FHA Loans
This is the Reason Using FHA Versus VA Mortgages in cases where the borrower cannot get a VA AUS Approval.
VA Eligibility Requirements On VA Home Loans
Below are the minimum VA Eligibility Requirements On VA Mortgages:
- The VA does not have a minimum credit score requirement
- The VA does not have a maximum debt to income ratio requirement
- There is a two year waiting period requirement after bankruptcy, foreclosure, deed in lieu of foreclosure, short sale to qualify
- Outstanding collections and charge off accounts do not have to be paid to qualify
HUD Eligibility Requirements On FHA Loans
HUD is the parent of the Federal Housing Administration (FHA). Below are the HUD Eligibility Requirements to qualify for FHA Home Loans:
- To qualify for a 3.5% down payment FHA Loan, the borrower needs a 580 FICO
- Borrowers under 580 credit scores down to 500 FICO can qualify for FHA Loans with 10% down payment
- There is a three year waiting period after foreclosure, deed in lieu of foreclosure, short sale
- There is a two year waiting period after Chapter 7 Bankruptcy discharge date
- Outstanding collections and charge off accounts do not have to be paid to qualify for FHA Mortgages
VA And FHA Manual Underwriting Guidelines
Both VA and FHA allows manual underwriting for borrowers who get a refer/eligible per AUS.
- Both VA and FHA allow borrowers in a current Chapter 13 Bankruptcy repayment plan to qualify for home loans with Trustee Approval on a manual underwrite
- Manual Underwriting Guidelines apply
- There is no waiting period after Chapter 13 Bankruptcy discharge date to qualify for VA and/or FHA Loans
However, if the discharge has not been seasoned for 24 months, the file needs to be manually underwritten.
The Main Reason Using FHA Versus VA Mortgages
Why would anyone who is eligible for VA Loans go with FHA Mortgages?
- There are instances where FHA AUS is more lenient than the VA AUS
- FHA is more forgiving with higher balances of outstanding collections and charge off accounts than the VA AUS
- A borrower may get an automated underwriting system denial on the VA AUS but an approve/eligible per AUS with FHA
- The VA does not allow non-occupant co-borrowers
- The FHA does allow non-occupant co-borrowers who are related to the main borrower by law, marriage, blood
- Only married spouses can be co-borrowers on VA Loans
For more information on this topic or other mortgage-related topics, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org. The Team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.