If you're exploring government-backed mortgage options, you've likely encountered both VA and FHA loans. While both programs help Americans achieve homeownership, they serve different purposes and have distinct advantages. VA loans are exclusively for Veterans, active-duty service members, and eligible surviving spouses. These loans offer zero down payment and no mortgage insurance, while FHA loans are available to all qualifying borrowers, but require both upfront and ongoing mortgage insurance premiums.
Understanding the key differences helps you determine which program best fits your situation and maximizes your benefits. This guide compares VA and FHA loans across the factors that matter most so you can make an informed decision about your home financing.
Eligibility: Who Can Use Each Program?
The most fundamental difference between these programs is who can use them.
VA Loan Eligibility
VA loans are a benefit you earned through military service. You may qualify if you:
- Served 90 consecutive days of active service during wartime
- Served 181 days of active service during peacetime
- Served more than 6 years in the National Guard or Reserves
- Are the spouse of a service member who died in the line of duty or from a service-connected disability
You'll need a Certificate of Eligibility (COE) to prove your qualification, which you can easily obtain online, through your lender, or by mail.
FHA Loan Eligibility
FHA loans are available to any qualified borrower, regardless of military service. Basic requirements include a valid Social Security number and legal residency, steady employment history, debt-to-income ratio generally below 43%, and the property must be your primary residence.
Down Payment Requirements: A Major Difference
This is where VA loans really shine for eligible Veterans.
VA Loans: Zero Down Payment
You can choose to put money down if you want. Down payments of 5% or more reduce your VA funding fee, so some Veterans opt to put some money down to lower this one-time cost. But you're not required to.
FHA Loans: 3.5% Minimum
A downpayment is required for an FHA loan. This is often the biggest hurdle for potential homebuyers. Saving thousands of dollars while paying rent can take years. The VA's zero down payment benefit removes this obstacle entirely for eligible Veterans.
Mortgage Insurance: Where Costs Really Diverge
How these programs handle mortgage insurance creates substantial long-term cost differences. This is probably the most important section to understand.
VA Funding Fee: Pay Once and Done
VA loans charge a one-time funding fee instead of ongoing mortgage insurance. Veterans receiving VA disability compensation, Purple Heart recipients, and surviving spouses are completely exempt from this fee. If you qualify for an exemption, you save thousands of dollars.
Most importantly, you pay this fee once and never pay mortgage insurance again. Your monthly payment won’t include an ongoing insurance premium.
FHA Mortgage Insurance
FHA loans require two types of mortgage insurance that add up quickly.
Upfront Mortgage Insurance Premium: A percentage of the loan amount is charged at closing. This can be financed into your loan, but it still increases your total loan balance and the interest you'll pay over time.
Annual Mortgage Insurance Premium: This is the expensive part. You'll pay an annual premium that's divided into monthly installments and added to your mortgage payment. For most borrowers putting down the minimum, this monthly cost is substantial and ongoing.
If you put down less than a certain threshold, you pay this monthly premium for the entire life of the loan. It never goes away unless you refinance to a conventional loan after building significant equity.
The Real Cost Over Time
Let's look at what this means long-term. The FHA borrower pays both an upfront premium and monthly premiums that continue for decades. The VA borrower pays a one-time funding fee and nothing more.
Over a decade, the difference amounts to tens of thousands of dollars. Over the full life of a mortgage, the gap becomes even more dramatic. That's money you could use for renovations, retirement savings, or your kids' education instead of watching it disappear into insurance premiums.
Credit Score Requirements
Both programs are more forgiving than conventional loans, but they take different approaches.
VA Loans: Flexible and Holistic
The VA doesn't set a minimum credit score. Individual lenders establish their own minimums, typically in the moderate range, though some accept lower scores. VA underwriting focuses heavily on your overall financial picture, especially residual income (the money left after paying debts and major expenses).
FHA Loans: Clear Score Thresholds
FHA allows lower credit scores, though you'll need a larger down payment if your score falls below a certain threshold. Most lenders prefer borrowers above this threshold for the minimum down payment option.
FHA guidelines are relatively forgiving regarding past credit issues. You can qualify within a few years after bankruptcy discharge or foreclosure, compared to longer waiting periods for conventional loans.
Interest Rates: Usually Competitive for Both
Both programs typically offer better rates than conventional loans for similar borrowers, though VA loans often have a slight edge. VA loans frequently offer the lowest rates of any mortgage product. Lenders view them as lower risk because the VA guarantees a portion of the loan, and VA borrowers statistically have lower default rates. The zero down payment doesn't result in higher rates like it might with other loan types.
FHA rates are also competitive. The government backing reduces lender risk, allowing better rates than conventional financing for borrowers with similar credit profiles.
The actual rate you receive depends on your credit score, debt-to-income ratio, loan amount, and current market conditions. Ask lenders to quote both if you're eligible for VA, so you can compare actual offers.
Property Requirements: Protecting Your Investment
Both programs have property standards to ensure you're buying a safe, sound home.
VA Standards
VA appraisals ensure properties meet Minimum Property Requirements for safety and soundness. The VA is particularly careful about issues like peeling paint in pre-1978 homes (lead paint concerns), roof condition and remaining life, adequate heating systems, and proper water and sewage systems.
These standards protect you from buying a home with serious defects. While they sometimes rule out extreme fixer-uppers, they prevent you from taking on more than you bargained for.
FHA Standards
FHA has similar property standards ensuring homes are safe and habitable. FHA appraisers look for health and safety issues, structural soundness, and code compliance.
The standards are generally comparable between the two programs. Both protect you from purchasing properties with serious problems that could affect your safety or require expensive immediate repairs.
Closing Costs: VA Offers More Protection
Both programs have specific rules about closing costs, though VA loans include more borrower protections.
The VA limits which closing costs Veterans can pay and caps amounts on certain services. Veterans don’t pay certain lender fees that are common with other loan types. Additionally, sellers can contribute up to 4% of the purchase price toward your closing costs, and many Veterans successfully negotiate seller concessions.
FHA loans don't restrict closing costs as strictly. You'll pay typical closing costs, though sellers can contribute toward these expenses. Without VA's fee restrictions, your total closing costs might be higher even with the larger possible seller contribution.
Loan Limits and Buying Power
Understanding how much you can borrow helps you know what homes are within reach.
Veterans with full entitlement can now borrow any amount a lender approves based on their finances, with no down payment required. This changed in 2020 when the VA eliminated loan limits for those with full entitlement. You can learn more about current VA loan limits on the VA website. FHA loan limits vary by county and are set annually.
Which Loan is Better for You?
If you're eligible for a VA loan, it's almost always the better choice. The zero down payment, no ongoing mortgage insurance, and competitive rates create unbeatable value. Over the life of your loan, you'll likely save tens of thousands of dollars compared to FHA financing.
FHA loans serve an important purpose for borrowers who aren't eligible for VA benefits. They provide accessible financing with flexible credit requirements and low down payments. But if you've earned VA benefits through your service, use them. This is one of the most valuable benefits available to Veterans.
Making Your Decision
If you've served our country and earned VA loan benefits, using them is one of the smartest financial decisions you can make. The combination of zero down payment, no ongoing mortgage insurance, and competitive rates creates savings that compound over the decades you'll own your home.
FHA loans are valuable for those who don't have access to VA benefits, but they can't match what VA loans offer eligible Veterans. Don't leave this hard-earned benefit on the table. Your service earned you advantages that can save you tens of thousands of dollars over the life of your loan.
Read more about VA loans and discover how much you can save compared to other financing programs.
FAQs
Can I use both a VA loan and an FHA loan?
Not simultaneously for the same property. You'll choose one program for each home purchase. If you're eligible for a VA loan, there's rarely a reason to choose FHA instead given the cost savings.
What if I'm eligible for a VA loan but my spouse isn't a Veteran?
You can still use your VA loan benefit. Your spouse can be a co-borrower on the loan. The VA loan benefits apply to the transaction regardless of your spouse's military status.
Can I switch from an FHA loan to a VA loan later?
Yes, if you're eligible for VA benefits, you can refinance an FHA loan into a VA loan. This is often a smart financial move because you'll eliminate the ongoing FHA mortgage insurance premium.
Do VA loans take longer to close than FHA loans?
Not necessarily. Both typically close in 30-45 days. Some sellers mistakenly believe VA loans are slower or more difficult, but experienced real estate agents know this isn't true.
Which loan is better for buying a fixer-upper?
Both programs have property standards that can make buying fixer-uppers challenging. However, both offer renovation loan options. The VA offers renovation loans that let you finance both the purchase and improvements, and FHA has the 203(k) program for similar purposes.
