FHA vs VA Loans

How FHA and VA Loans Actually Differ

FHA and VA loans are both government-backed, but they are built for different borrowers and carry different long-term costs. Both allow lower credit scores than most conventional options, and both help buyers who can’t put 20% down. But the programs work in fundamentally different ways, and those differences add up in real dollar amounts over time.

FHA loans are insured by the Federal Housing Administration, part of HUD. Because the government backs the loan, lenders can work with borrowers who might not qualify for conventional financing. That means lower credit score requirements and a minimum down payment of 3.5% for most buyers. Any qualified borrower can apply, regardless of military service or employment type.

VA loans work through a guarantee from the Department of Veterans Affairs, but only for eligible veterans, active-duty service members, and some surviving spouses. That guarantee allows lenders to offer terms that simply don’t exist elsewhere: no down payment required, no monthly mortgage insurance, and no VA-set credit floor. In exchange for military service, eligible borrowers get access to one of the most favorable financing programs available.

According to HUD’s FY2025 Annual Report, more than 83% of FHA forward purchase mortgage endorsements went to first-time homebuyers. That stat reflects who FHA is built to serve: buyers without a large down payment, often without prior homeownership experience, who need flexible underwriting to get approved.

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

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

FHA loans carry two layers of mortgage insurance cost. VA loans carry one upfront fee with no monthly insurance. Most buyers focus on the wrong number first.

People tend to compare the down payments: zero percent for VA, 3.5% for FHA. They stop there and assume VA is obviously better for anyone eligible. But the bigger cost driver for most buyers is mortgage insurance. So let’s look at both sides of the math.

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, which most borrowers roll into the loan balance at closing. Then there’s an annual MIP, paid monthly. HUD reduced the annual rate to 0.55% for most 30-year loans in 2023 per Mortgagee Letter 2023-05, and that rate remains in effect for 2026. For borrowers who put less than 10% down, that annual MIP runs for the life of the loan. It doesn’t stop when you reach 20% equity. The only way to eliminate it is to refinance into a conventional loan once you have enough equity built up.

That’s the part that surprises most buyers. And it’s the part that creates real long-term cost that rarely gets discussed upfront.

How the VA funding fee works

VA loans have no monthly mortgage insurance. But they do have a one-time funding fee. For a first-time VA loan user with no down payment, the fee is 2.15% of the loan amount. It drops to 1.50% with 5% to 9.99% down, and to 1.25% with 10% or more down. Most borrowers roll the fee into the loan at closing. The VA publishes full rate tables and exemption details on their funding fee and closing costs page.

Some veterans pay no funding fee at all. The VA waives it for veterans who receive disability compensation for a service-connected condition, for Purple Heart recipients on active duty, and for surviving spouses receiving Dependency and Indemnity Compensation. If a disability claim is pending at closing, the fee may be refunded retroactively once the rating is confirmed.

Starting in 2026, the VA funding fee is tax-deductible for eligible borrowers who itemize deductions, per IRS Publication 936. That adds another financial consideration most buyers aren’t aware of yet.

The table below shows what these costs look like on a $400,000 home purchase.

The VA funding fee is higher upfront in this example. But the monthly FHA insurance closes that gap in under a year. After that, the FHA loan keeps adding cost every month while the VA loan doesn’t. That math compounds quickly over time.

Credit Scores, Eligibility, and Who Qualifies

FHA loans have the lowest credit floor of any major loan program. A score as low as 500 can qualify, though you’ll need 10% down at that level. At 580 or above, the minimum down payment drops to 3.5%. For buyers still rebuilding their credit after financial setbacks, FHA is often the only realistic near-term path to buying.

VA loans have no official credit minimum. The VA itself sets no floor. But most lenders apply their own requirement, typically 620 or higher. Some VA lenders will approve at 580, though those programs are less common. For veterans with scores between 500 and 619, FHA may be the more accessible option right now, even with VA eligibility in hand. Understanding exactly what lenders look at for each program helps you know which application makes sense to pursue first.

Who qualifies for a VA loan?

VA eligibility covers more people than most borrowers realize. You may qualify if you served 90 consecutive days of active duty during wartime, 181 continuous days during peacetime, or six or more years in the National Guard or Reserves. Surviving spouses of service members who died in service or from a service-connected disability may also qualify. Full eligibility requirements are available on the VA’s eligibility page.

Surviving spouses deserve a specific mention here. Many are eligible for VA loan benefits and never find out. Before defaulting to FHA, a surviving spouse should always confirm VA eligibility. No monthly insurance and no down payment requirement can mean tens of thousands in savings over the life of the loan.

Confirming eligibility starts with a Certificate of Eligibility, or COE. Most lenders can pull this on your behalf during the application process. You don’t need it in hand before having a first conversation about loan options.

The VA guaranteed 528,343 home loans in FY2025, a 26.8% increase from the prior year, according to VA Home Loans Lender Statistics. That growth reflects how many eligible borrowers are actively using this benefit each year.

DTI and qualifying factors

Both loan types review your debt-to-income ratio as part of the qualification process. FHA generally allows a maximum DTI of 43%, though lenders can approve higher ratios with compensating factors like strong savings or a stable employment history. VA loans use a residual income standard alongside DTI. Residual income measures what’s left after all debts are paid each month. In practice, this approach is often more favorable for borrowers with steady income and reasonable expenses because it focuses on actual cash flow rather than a ratio in isolation.

VA loans also tend to perform better over time. According to the MBA’s Q4 2025 National Delinquency Survey, VA loan delinquency rates decreased year over year while FHA delinquency rates reached 11.52%. The residual income standard plays a meaningful role in that outcome.

Loan Limits for Colorado and Florida Buyers

FHA loan limits are set by county and updated each year. For 2026, the FHA limit in El Paso County, which covers Colorado Springs, is $541,650 for a single-family home. In the Denver metro, counties like Adams, Arapahoe, and Denver carry a 2026 FHA limit of $862,500. Use the lookup below to check the exact limit for your county.

VA loans remove the county limit question for most eligible buyers. Veterans with full VA entitlement have no maximum loan amount when purchasing with no down payment. The Blue Water Navy Vietnam Veterans Act of 2019 eliminated VA loan limits for full entitlement borrowers, meaning a veteran buying in Summit County or Eagle County in Colorado can still finance a home with zero down, as long as income and credit support the payment. Only borrowers who already carry an active VA loan on another property may face limits tied to remaining entitlement.

For Florida buyers, the 2026 FHA limit in most counties is $541,287 for a single-family home. Monroe County, which covers the Florida Keys, is the notable exception at $990,150 for 2026. Use the lookup below to check the FHA limit for your Florida county.

Which Loan Fits Your Situation

For most eligible veterans and active-duty service members with a credit score at or above 620, a VA loan is almost always the stronger financial choice. No monthly insurance. No down payment required. And the one-time funding fee, even at 2.15%, costs less in total than years of FHA MIP on the same loan amount.

But VA isn’t always the only path. Here are the situations we see most often with buyers across Colorado and Florida, and the loan that typically makes the most sense in each.

Veteran with a 640+ credit score: VA is the clear choice. Most lenders approve at this score. No monthly insurance, no down payment required, and the long-term savings over FHA are significant.

Veteran with a 560 credit score: Most VA lenders require 620 or higher. FHA is likely the more realistic option right now. Spending six to twelve months improving credit before applying for a VA loan can save thousands in the long run and may open access to better VA pricing.

Non-military first-time buyer: FHA is the primary path. It allows lower credit scores, requires a smaller down payment than most conventional programs, and has strong lender availability across both Colorado and Florida.

Surviving spouse: Many surviving spouses qualify for VA loan benefits and are unaware of it. Confirming eligibility before defaulting to FHA can produce meaningful savings, including the elimination of monthly mortgage insurance and no down payment requirement.

Veteran with an active VA loan on another property: This situation introduces partial entitlement, which affects zero-down buying power. A lender with VA experience can calculate your remaining entitlement and determine whether VA or another program fits the new purchase best.

One practical note: VA appraisals follow Minimum Property Requirements that focus on safety and livability. Some sellers are cautious about VA offers because of potential repair requirements before closing. Working with an experienced Colorado mortgage broker familiar with VA programs can help you structure offers that address seller concerns upfront. It’s rarely a dealbreaker, but ignoring it creates surprises in competitive markets.

Common Mistakes to Avoid

Questions to Ask Your Lender

• Based on my credit score and eligibility, which loan gives me the lower total cost over my expected time in the home?
• What is the total mortgage insurance cost over five and ten years on each loan at my purchase price?
• Do I qualify for a VA funding fee exemption, and how does a pending disability claim affect that determination at closing?
• If I take an FHA loan now, what equity level would let me refinance into a conventional loan and eliminate MIP?
• How does the VA residual income standard work at my income level, and would I qualify based on it?
• If I’m a surviving spouse, have you confirmed whether I have VA loan eligibility before recommending FHA?