Posted On: August 7, 2025

The Real Estate Agent's Guide to FHA and VA Loans

As a real estate agent, you’re the authority that many clients turn to for information on every step of the home-buying process, from financing to closing. It helps to tailor your strategy to specific types of mortgage programs, including government-backed loans from the FHA to VA, to know how to best help all types of clients.

If you're just getting started in the industry, learning about these financing options is an important part of your foundation. While many online pre-licensing courses include modules these topics, let's get a brief look at the basics below.

What Are A Buyer’s Home Loan Options?

There are three basic categories of mortgage programs: conventional loans, FHA loans, and VHA loans. All three are issued by banks and other types of private lenders, but FHA and VA loans are backed by the U.S. government.

We’ll describe FHA and VA loans in detail below, but the biggest thing to know is that, as a result of being government-backed loans, FHA and VA loans are easier to qualify for than conventional loans.

Conventional loans often require the following:

Minimum credit score of 620-660 or more.
Maximum debt-to-income ratio of 33-36%.
Minimum down payment of at least 5% of the purchase price, though it’s possible to get as low as 3%.

FHA loans allow a significantly lower credit score (as low as 500) and higher debt-to-income ratio (up to 43%). VA loans require minimum credit scores similar to conventional loans, but they allow a similar debt-to-income ratio as FHA loans (41%) and an even lower minimum down payment (none!).

Government-backed loans make lenders more willing to take on individuals and loan terms that carry a higher risk of default because the government has promised to make up for some of the potential losses.

A Guide to FHA Loans

The Federal Housing Administration (FHA) is charged with promoting homeownership and healthy communities. As part of this mission, it ensures private loans for riskier borrowers in order to broaden how much of the population can achieve homeownership.

Who Qualifies for FHA Real Estate Loans?

To get an FHA loan, you must:

Be a legal resident (but not necessarily a citizen) of the United States.
Be using the loan for a primary residence for yourself (not an investment or vacation property).
Have a credit score of 580 or more to qualify for the lowest down payments, though you may be eligible for some kind of FHA loan with a credit score as low as 500.

How to Help Homebuyers with FHA Loan Eligibility

One of the ways that the FHA makes it easier for people to qualify for a loan is that they allow “first-time homebuyers” to use their positive rent payment history as part of the credit assessment in addition to all the normal factors like credit history, debt-to-income ratio, and financial capacity.

There are a lot of caveats regarding the inclusion of positive rent payment history, but as a real estate agent, it’s helpful to know that the FHA’s “first-time homebuyer” definition has more wiggle room than you might think. As long as a client hasn’t had an ownership interest in another property for at least three years, they might be eligible for the inclusion of their positive rent payment history. This is helpful for people who have lost ownership interest in a past primary residence due to divorce or legal separation.

FHA Loan Requirements

Aside from the homebuyer’s requirements, there are conditions for the loan itself.

FHA loans require:

A home appraisal by an FHA-approved professional.
A down payment (but lower than a conventional loan would allow).
Purchase of a Mortgage Insurance Premium (MIP) for 1.75% of the loan amount due at closing and an annual premium of 1.35% for 30-year loans. If the buyer makes a down payment of at least 10%, the PIM goes away after just 11 years.
Closing costs are capped at 6%. Overages must be waived or paid by the seller.
A maximum loan amount is based on the average cost of housing in the region. FHA loans can be used for properties that exceed the cap, but the difference must be paid in cash by the borrower at closing.

Advantages of FHA Loans

Because the loan is insured by the federal government, the lender can offer a borrower better terms on an FHA loan than would be possible with a conventional loan.

With a qualifying credit score, FHA borrowers can pay as little as 3.5% of the purchase price as a down payment. They may also be able to get a higher loan-to-value ratio (LTV) and longer repayment terms with no prepayment penalties.

FHA loans also offer some additional protections after purchase. FHA loans come with special loss mitigation options, meaning that if the borrower falls behind on their payments, they have extra opportunities to help them avoid foreclosure.

Disadvantages of FHA Loans

The restrictions imposed by an FHA loan can present a barrier to closing a deal, especially if you’re in a seller’s market where buyers are expected to make concessions. As a real estate agent, you need to be aware of the concessions you can’t make when negotiating with an FHA loan, like waiving the appraisal or covering all closing fees.

Additionally, the MIP is something buyers must factor into their decisions. It often comes with an up-front cost that private mortgage insurance (PMI) doesn’t, and it can’t be canceled in the same way.

Who Should Consider an FHA Loan?

FHA loans are thought of as classic first-time homebuyer loans, but they’re not exclusively for first-time buyers. And while most first-time buyers qualify, a few actually won’t.

FHA-insured loans are also helpful if you have bad credit, no credit, low-to-moderate income, and/or a high debt-to-income ratio. It also opens up possibilities for anyone who has gone through bankruptcy or foreclosure.

A Guide to VA Loans

VA loans are government-backed loans available to military personnel and their families. This mortgage program is run through the Department of Veteran Affairs (VA).

VA Loan Types

There are two types of VA loans: guaranteed and direct.

VA-guaranteed loans are available to most military families. It’s a private loan, but the VA has guaranteed that they will pay a certain amount to mitigate the lender’s losses if the borrower defaults.

VA direct loans are only available to certain disadvantaged veterans: those with service-connected disabilities, Native American tribal membership, or who have delinquent or defaulted VA-guaranteed loans in their history. No private lender is involved because these veterans are typically deemed too risky, even with a government guarantee. Instead, the real estate loan comes directly from the VA.

Since VA direct loans are so rare, we’ll stick to discussing the terms of VA-guaranteed loans below.

Who Qualifies for VA-Guaranteed Real Estate Loans?

To get a VA-guaranteed loan, you must be either a:

Current member of the U.S. armed forces with at least 90 continuous days’ service,
Veteran who meets the minimum active-duty requirements,
Reservist or National Guard member who meets the service requirements or an
Eligible surviving spouse

The service requirements vary based on the time of service. Wartime service requirements are shorter than peacetime – typically 90 days versus 181 unless there was a service-connected disability. Reservists who don't meet active-duty minimums need 6 creditable years.

Finally, VA loans are not available to anyone with a dishonorable discharge or transfer.

Qualifying military families must get a Certificate of Eligibility (COE) proving they meet the necessary terms. Once you have your COE, you need to meet some additional terms to qualify for the loan. These include:

Meeting the credit requirements set by the lender (often a score of 620 or above) and
Having no past defaults, delinquencies, or foreclosures related to federal debts.

VA Loan Requirements

Aside from the VA loan requirements for homebuyers, there are additional requirements for the loan itself. This includes:

Using the loan for your primary residence.
Using a VA-approved private lender.
Getting a VA appraisal (which is different from a conventional home appraisal).
Paying an up-front VA Funding Fee of 0.5% to 3.3% of the total loan amount.
Staying under the cap for buyer-paid closing costs.
Getting a maximum loan amount (set by your lender) based on your available entitlement. Often, lenders are willing to loan up to four times the entitlement amount.

Unlike FHA loans, VA loans require no down payment and no mortgage insurance premium.

Advantages of VA Loans

Even with the highest possible VA funding fee, VA loans have the smallest required up-front costs of any of the mortgage programs due to the policies regarding down payments, mortgage insurance, capped closing costs, and disallowable fees.

Individuals with service-connected disabilities may even be able to get the VA funding fee waived or refunded.

Disadvantages of VA Loans

The biggest downside of a VA loan is a more expensive home appraisal. VA appraisals can be twice as expensive as conventional appraisals.

The VA funding fee is often listed as a disadvantage of VA loans, but while the maximum funding fee of 3.3% is more expensive than mortgage insurance, fees can also be lower at just 0.5%. The biggest funding fees are required of repeat VA loan users, cash-out refinance loans, and those who forego a down payment or keep it small. For first-timers and those who can afford a larger down payment, the funding fee is not as problematic.

In the past, VA loans also made it more difficult to negotiate for a home because they disallowed paying a real estate agent’s commission entirely. This automatically made VA loan offers less attractive than others and discouraged real estate agents from representing VA homebuyers. This limitation has thankfully been lifted with a temporary variance.

Who Should Consider a VA Loan?

If you might qualify for a VA-guaranteed loan, you should look into it. These are the least expensive of all loan types, so it’s worth trying.

However, if your credit score is below 620, you may have better luck securing an FHA loan.

Learn More About FHA Loans, VA Loans, and More

Financing is just one of the topics real estate agents need to be educated on so they can counsel and guide their clients toward the best option. That’s why a quality real estate education is so important, whether it’s your pre-license courses or continuing education credits.

As a trusted real estate training provider, we offer state-approved continuing education courses on a variety of subjects, including home loan options. Our courses are online and self-paced for your convenience.

Enroll today and get learning!