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in Merced, CA
Both FHA and VA loans offer affordable paths to homeownership in Merced, but they serve different buyers. FHA loans work for anyone with decent credit and 3.5% down, while VA loans reward military service with zero down payment.
The right choice depends on your military status and how much cash you can bring to closing. Veterans should almost always choose VA loans when eligible—the benefits are that good.
FHA loans accept credit scores as low as 580 with 3.5% down. You'll pay an upfront mortgage insurance premium of 1.75% plus monthly premiums for the life of most loans.
These loans cap at conforming limits in Merced, currently covering most properties in the area. Sellers can contribute up to 6% toward your closing costs, which helps when cash is tight.
The big trade-off: you're stuck with mortgage insurance unless you refinance later. On a $400,000 home, that's roughly $250 extra per month for as long as you keep the FHA loan.
VA loans require zero down payment and charge no monthly mortgage insurance. You'll pay a one-time funding fee between 1.4% and 3.6% depending on your service type and whether it's your first VA loan.
Veterans with service-connected disabilities get the funding fee waived entirely. Rates typically run 0.25% to 0.5% lower than FHA, and loan limits in Merced County go up to $766,550 for 2024.
Sellers can pay all your closing costs if they agree. Appraisers hold VA properties to stricter standards—peeling paint or safety issues will kill the deal until fixed.
The down payment gap is massive: VA needs nothing while FHA requires at least $14,000 on a $400,000 Merced home. Monthly payments favor VA loans heavily since there's no mortgage insurance dragging them down.
FHA allows non-occupant co-borrowers, so your parents can help you qualify. VA loans don't permit that unless the co-borrower is your spouse or another eligible veteran.
Property condition matters more with VA. That fixer-upper on G Street might pass FHA inspection but fail VA standards for chipped paint or a worn roof.
If you're eligible for a VA loan, use it. The zero down payment and no mortgage insurance combination saves tens of thousands over the loan term compared to FHA.
Choose FHA only if you're not military-affiliated or need a non-veteran co-borrower to qualify. It's the best low-down-payment option for civilians, especially first-time buyers in Merced without big savings.
Some veterans still pick FHA when buying a fixer-upper that won't pass VA's property requirements. You can always refinance to VA later once repairs are complete.
Yes. Active duty members qualify after 90 consecutive days of service. National Guard and Reserve members need six years of service to become eligible.
Only if you put down 10% or more at purchase—then it drops after 11 years. Otherwise it stays for the full loan term until you refinance.
FHA typically closes slightly faster since VA appraisals include stricter property inspections. Both usually take 30-45 days with responsive borrowers.
Yes, both programs allow up to four units as long as you live in one. This works well for Merced investors wanting rental income.
FHA accepts most cosmetic issues. VA requires safety items like peeling paint and handrails to be fixed before closing, which can delay or kill deals.