The Department of Veterans Affairs VA loan program is a government-backed loan for single family mortgages, similar in a variety of ways to another government backed loan program run by the FHA. Both loan programs offer competitive rates and terms, both allow borrowers who have less acceptable credit (in the eyes of conventional lenders) and both have streamline refinance loan options for borrowers with existing VA or FHA mortgages.

But there are some ways that the VA does not offer exactly what the FHA does--some of those differences are significant. For example, the FHA has a mandatory down payment requirement, where many VA home loans feature a zero downpayment option (unless the sale price of the home exceeds the appraised value of that property).

There can be some confusion between FHA and VA mortgages because of one product the FHA offer through participating lenders that the VA does NOT offer--the home equity conversion mortgage loan (HECM).

The FHA HECM loan program is aimed at seniors aged 62 or older who either own their property completely (having paid off the mortgage) or who are close to paying off their loan in full. HECM loans feature no monthly mortgage payments, offer cash out to the borrower, and the loan is paid in fulll when the borrower dies or sells the property. (The home is sold when the borrower dies and the loan is paid off that way in such cases.)

The VA only features cash out refinancing loans which allow money back to the borrower after the original loan has been paid in full, plus Streamline Refinancing loans which feature no cash back to the borrower but do result in a tangible benefit in the form of a lower interest rate and/or mortgage payment.

VA borrowers are encouraged to use their VA home loan benefits to purchase their first, or even second or third homes (there is an occupancy requirement for all new purchase VA home loans) but the concept of a Home Equity Conversion Mortgage like the FHA offers is not part of the VA portfolio of loan products. Consider that now, with greater regulation and control of HECM loans in general, such lending may get harder to come by from participating FHA lenders, but VA loans have always been limited to new purchase, cash out, and streamline loans.

VA does offer some supplemental loans and other types of “special underwriting required” products but these are not offered by all lenders--ask your loan officer for help with your options in this area.

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