Buying a home is a milestone many people dream about, but the path to homeownership isn’t always easy. Qualifying for a conventional loan can be difficult due to high credit score requirements, stricter debt-to-income ratios, and the need for a large down payment.
Government-backed programs like FHA and VA loans can make homeownership more attainable. However, each program works differently and is designed for a different group of people. In this article, we'll compare FHA vs. VA loans and their pros and cons to help you figure out which might be the right choice for your situation.
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Differences between FHA and VA loans
While the federal government insures both FHA and VA loans, each is designed for different borrowers. The major difference between the two programs is that FHA loans aim to help low- and moderate-income families, especially first-time home buyers who don’t have a large down payment saved and have less-than-perfect credit. On the other hand, VA loans are exclusively for active-duty service members, veterans, and their spouses.
Let’s break down the other major differences between the two programs:
Who backs them
The Federal Housing Administration, which is part of the Department of Housing and Urban Development (HUD), backs FHA loans. Because the FHA insures part of the loan in case borrowers default, lenders are more willing to approve those who don't qualify for conventional mortgages.
The U.S. Department of Veterans Affairs insures VA loans. The VA doesn’t lend money directly but guarantees a portion of the loan for approved lenders. This reduces lender risk, allowing for zero down payment.
Eligibility
FHA loans are widely accessible to anyone who meets the FHA-approved lender’s requirements, including credit score and debt-to-income limits.
VA loans have specific eligibility criteria. To qualify, you need to be an active-duty service member, veteran, or eligible surviving spouse. For VA loans, you also need a certificate of eligibility (COE), which you can obtain from the Department of Veteran Affairs.
Credit score
FHA loans have flexible credit score requirements. Many lenders approve borrowers with scores as low as 580 and, in some cases, as low as 500 if you can make a down payment of at least 10%.
The VA doesn’t set an official minimum credit score for VA loans. However, most lenders prefer applicants with at least a 620 score. Lenders might be willing to accept lower scores if you have other strong financial factors, such as stable income or a low debt-to-income (DTI) ratio.
Down payment
One of the most attractive features of FHA loans is the low minimum down payment. With a credit score of 580 or higher, you’ll need to put down as little as 3.5%. If your score falls between 500 and 579, you’ll need to put at least 10% down.
VA loans don’t require any down payment at all. This makes the program attractive to veterans and service members who may not have substantial savings but want to buy a home.
Debt-to-income ratio
Lenders use your DTI ratio to determine your ability to manage monthly payments. With FHA loans, the maximum DTI ratio is 43%. However, some lenders accept ratios as high as 50%.
The VA doesn’t set a maximum DTI ratio, but lenders generally accept no more than 41%. Borrowers with ratios above 41% will undergo additional financial scrutiny.
Mortgage insurance and fees
FHA loans require an upfront mortgage insurance premium (UFMIP), usually 1.75% of the loan amount, and annual mortgage insurance premiums (MIP), paid monthly. These premiums protect lenders in case you default but increase your overall cost of the loan.
VA loans don’t need any monthly mortgage insurance. Instead, you’ll pay a one-time VA funding fee, which can be rolled into the loan. The absence of mortgage insurance makes VA loans much cheaper in the long run.
Loan limits
FHA loans are subject to limits that vary by county. In 2025, you can borrow from $524,225 in low-cost areas and up to $1,209,750 in high-cost areas. You can search this database to find the loan limits in your area.
VA loans don’t have a set limit for borrowers with full entitlement. However, limits apply if you have an active loan or have defaulted before.
Closing costs
Both programs have closing costs. For FHA loans, you’ll need to pay 2–6% in closing costs, while VA loans range between 1% and 6%.
Interest rates
Both FHA and VA loans often come with competitive rates. However, VA loans may have better rates than FHA loans. Keep in mind that your rate will depend on your financial situation. Improving your credit score and saving for a larger down payment can help you secure better rates.
| FHA loan | VA loan | |
|---|---|---|
| Eligibility | Available to anyone who meets the FHA loan requirements | Active-duty service members, veterans, and spouses |
| Down payment | As low as 3.5% for scores of 580 or higher; 10% for scores between 500 and 579 | Zero down payment |
| Minimum credit score | As low as 500 | No requirement, but most lenders prefer a score of 620 or higher |
| Debt-to-income ratio | Not more than 43% but can go as high as 50% | Not more than 41%; otherwise, you’ll undergo more financial scrutiny |
| Property type | Primary residence | Primary residence |
| Loan limits | $524,225 to $1,209,750 | No limits for borrowers with full VA entitlement |
| Mortgage insurance & fees | Upfront and monthly mortgage insurance premiums | VA funding fee |
| Closing costs | 2% to 6% | 1% to 6% |
Pros and cons of FHA loans
Pros
- Widely available: You can qualify for an FHA loan provided that you meet the lender’s requirements.
- Low down payment: You need to put down as little as 3.5% if you have a score of at least 580. Otherwise, you'll put down 10% if your score is between 500 and 579.
- Low credit score: Lenders accept scores as low as 500.
- Gift funds: The FHA allows borrowers to use gift funds for down payment and closing costs assistance.
- Flexible DTI ratios: While most lenders prefer a DTI ratio of 43% or less, you can still qualify with a ratio as high as 50%.
- Assumable mortgages: If you decide to sell your home, the buyer can take your FHA loan plus the interest.
Cons
- Mortgage insurance: Requires both upfront and annual mortgage insurance premiums.
- Loan limits: Often vary by county, which may restrict home choices.
- Property restrictions: The property must meet the FHA’s safety and livability standards.
- Occupancy: You can use it to finance your primary residence only.
Pros and cons of VA loans
Pros
- Zero down payment: You don’t need to put down anything.
- No mortgage insurance: You only need to pay a one-time funding fee.
- Low interest rate: VA loans often offer lower interest rates than FHA loans.
- Assumable: Like FHA loans, VA loans are also assumable.
Cons
- Funding fee: One-time VA funding fee, unless exempt.
- Eligibility : Only available to eligible veterans, service members, and surviving spouses.
- Appraisal: The VA appraisal process can be more time-consuming than FHA or conventional appraisals.
- Occupancy: You can only use a VA loan to buy a primary residence.
FHA vs. VA loan: Which is right for you?
Both FHA and VA loans come with several benefits, but which one is right for you? This decision comes down to your eligibility. If you qualify for a VA loan, it’s usually the best option. The lack of mortgage insurance, zero down payment, and lower interest rates make VA loans way more affordable. These benefits can save you tens of thousands of dollars over the life of the loan.
If you don’t qualify for a VA loan, an FHA loan is still an excellent option for achieving your homeownership dream. The program is especially perfect if you don’t meet conventional loan requirements. You don’t need a large down payment saved or a perfect credit score to qualify.
Before deciding which mortgage loan is right for you, it’s wise to compare rates and terms from multiple lenders. This way, you’ll know your total long-term costs and can make an informed decision.