When buyers ask us about the FHA vs VA loan comparison, most expect a simple answer. But the real differences go deeper than most articles let on — especially when you factor in what each loan actually costs you month to month. Both are government-backed, both allow lower down payments than a standard conventional loan, and both serve buyers who need flexible financing. But they work differently, they cost differently, and they're available to very different groups of people.

Here's what we see happen: a veteran assumes both loans are roughly the same, picks FHA because it seemed simpler to apply for, and then spends years paying mortgage insurance they never had to pay. That's a real and avoidable cost. So before you pick a loan, it's worth understanding what sets these two programs apart.

How FHA and VA Loans Actually Differ

FHA loans are available to almost anyone who meets the credit and income requirements. The Federal Housing Administration insures the loan, so lenders take less risk. That's why FHA allows lower credit scores and smaller down payments than most traditional financing options.

VA loans work differently. The Department of Veterans Affairs guarantees a portion of the loan — but only for eligible veterans, active-duty service members, and some surviving spouses. Because of that guarantee, lenders can offer very favorable terms. No down payment. No monthly mortgage insurance. That's a big deal.

According to HUD's FY2023 FHA Annual Report, approximately 82% of FHA purchase mortgage originations went to first-time homebuyers — which shows how central this loan is to new buyers who don't qualify for VA financing.

The table below shows how the two programs compare across the factors that matter most.

Mortgage Insurance vs. the VA Funding Fee: What You'll Really Pay

This is where the comparison gets interesting. And it's where most buyers focus on the wrong number.

People often compare the down payment — 0% for VA vs. 3.5% for FHA — and stop there. But the monthly cost of mortgage insurance often matters far more over time. So let's look at both sides of the equation.

How FHA Mortgage Insurance Works

FHA loans carry two layers of mortgage insurance. First, there's an upfront MIP of 1.75% of the loan amount. Then there's an annual MIP, which you pay monthly. According to HUD, FHA reduced its annual mortgage insurance premium to 0.55% for most 30-year loans in March 2023, down from 0.85%.

Here's the part that surprises many buyers: if you put less than 10% down on an FHA loan today, you pay that annual MIP for the life of the loan. It doesn't go away when you reach 20% equity. You have to refinance out of the FHA loan to stop paying it. That's a meaningful long-term cost that rarely gets discussed upfront.

You can read more about FHA mortgage insurance guidelines directly from HUD if you want the full rule breakdown.

How the VA Funding Fee Works

VA loans have no monthly mortgage insurance. But they do have a one-time funding fee. Per VA guidelines, the VA funding fee for a first-time user with no down payment is 2.15% of the loan amount for regular military, and borrowers can finance it into the loan.

That fee goes down if you put money down. And some veterans pay nothing at all — the VA waives the funding fee for veterans with a service-connected disability rating.

The table below shows what this looks like in real numbers on a $400,000 loan.

So while the VA funding fee is slightly higher upfront in this example, FHA borrowers spend thousands more over time — every year, without end, until they refinance. That monthly drag adds up fast.

Credit Score and Eligibility: Who Qualifies for Each Loan

FHA loans have the lowest credit floor of any major loan program. You can qualify with a score as low as 500, though you'll need 10% down at that level. At 580 or above, the minimum down payment drops to 3.5%. That makes FHA loans one of the few paths to homeownership for buyers still rebuilding their credit.

VA loans don't have an official credit minimum. The VA itself sets no floor. However, most lenders set their own requirement — typically 620 or higher. We've worked with lenders who will go to 580 on a VA loan, but those are less common. If your credit score is between 500 and 619, FHA may be your most realistic near-term option, even if you're a veteran.

Who Is Eligible for a VA Loan?

VA eligibility covers more people than many realize. You may qualify if you served 90 consecutive days of active duty during wartime, 181 continuous days during peacetime, six or more years in the National Guard or Reserves, or if you're the surviving spouse of a service member who died in the line of duty. You can review full VA loan eligibility requirements on the VA's website.

Per the U.S. Department of Veterans Affairs 2023 Annual Benefits Report, the VA guaranteed approximately 403,000 home loans in fiscal year 2023 — a reflection of how many eligible borrowers use this benefit each year.

If you're not sure whether you qualify, a Certificate of Eligibility (COE) is the official document that confirms it. Lenders can often pull this on your behalf. You don't need to have it in hand before starting a conversation.

Debt-to-Income and Other Qualifying Factors

Both loan types look at your debt-to-income ratio as part of qualification. FHA generally allows a maximum DTI of 43%, though some lenders approve higher with compensating factors. VA loans use a residual income standard in addition to DTI, which measures what's left over after all debts are paid — a more borrower-friendly approach in many cases.

Which Loan Makes More Sense for Your Situation

For most veterans and active-duty service members with a credit score at or above 620, a VA loan is almost always the better financial choice. You skip the down payment, you skip monthly insurance entirely, and the funding fee is often lower in total cost than years of FHA MIP.

Per VA guidelines, eligible veterans with full entitlement have no loan limit when purchasing a home with no down payment — a benefit established by the Blue Water Navy Vietnam Veterans Act of 2019. That means in most Colorado and Florida markets, VA buyers can finance a significant purchase without hitting a cap.

But VA isn't always the only path — or the right one. Here are three common scenarios we see.

One thing we tell buyers often: if you're on the fence, run the numbers on both side by side. Don't assume FHA is simpler or VA is harder. In our experience working with borrowers across Colorado and Florida, the VA loan process is often straightforward for eligible buyers — and the financial outcome is almost always better. You can explore all available loan programs to see what fits your full situation.

Frequently Asked Questions