FHA vs. VA Loan: Which One Is Right For You?
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With no down payment or mortgage insurance requirements, VA loans are hard to beat.
But even if you’re eligible for a VA loan, an FHA loan might be worth a look, especially if you have a lower credit score and are able to put down at least 3.5% of the purchase price.
Both mortgages are popular with first-time home buyers. VA loans, backed by the U.S. Department of Veterans Affairs, are open only to those who have served or are serving in the military and for some surviving spouses. FHA loans, insured by the Federal Housing Administration, are open to anyone who qualifies. Beyond that, specific features and requirements of the two loans differ as well. The mortgage that’s right for you will depend on your circumstances.
» MORE: Guidelines for VA loans
VA loan vs. FHA loan
Loan requirement | VA loan | FHA loan |
|---|---|---|
Property requirements | Must meet safety, sanitation and security standards, including having adequate living space, drainage and electricity connection. See the complete list of current VA loan property requirements in the VA handbook here. | Water meets quality and pressure standards. Safe and sanitary sewage disposal. At least one full bathroom. Adequate space and heating. Hot water. Adequate electricity. Kitchen must have a sink with running water and a stove utility hookup. Sound structure and foundation. |
Minimum down payment | 0% in most instances. | 3.5% |
Loan limits | No federal loan limits for most borrowers. | $498,257 in low-cost counties to $1,149,825 in high-cost counties. |
Mortgage insurance and fees | One-time VA funding fee of 1.25% to 3.3% of loan amount for purchase mortgages. | Upfront premium of 1.75% of loan amount and annual premium of 0.15% to 0.75% of loan amount for purchase mortgages. |
Credit score requirement | No minimum set by VA, but 620 is a common lender requirement. | 500 to 579 to qualify with minimum 10% down payment; 580 or higher to qualify for 3.5% down payment. |
Maximum debt-to-income ratios | Lenders will apply more scrutiny if DTI is over 41%. | 47% or less, depending on credit score and other factors. |
Average mortgage rates | Tend to be lower than for FHA loans. | Tend to be higher than for VA loans. |
Property type
VA loans and FHA loans can be used to purchase or refinance a primary residence, as long as the home is safe and structurally sound. Some exceptions may be made for secondary homes, though not for vacation homes. The property must meet minimum requirements set by the Department of Housing and Urban Development for an FHA loan and the Department of Veterans Affairs for a VA loan.
The takeaway: Shop for a conventional mortgage, which isn’t backed by the federal government, to buy a vacation home or investment property.
» MORE: VA vs. conventional loans
Minimum down payment
VA loans
VA loans usually don't require a down payment.
FHA loans
The minimum down payment for FHA loans is 3.5% for borrowers with a credit score of 580 or higher. The minimum down payment is 10% for borrowers with a credit score of 500 to 579.
The takeaway: VA loans win for the lowest down payment requirement.
Loan limits
VA loans
VA loan limits apply only to borrowers with other active VA loans and those who have defaulted on a VA loan.
Those limits mirror the guidelines set by the Federal Housing Finance Agency for conforming loans. The limit for 2024 is $766,550 in a typical U.S. county and higher in expensive real estate markets, such as San Francisco County. The maximum in these areas is $1,149,825. You can borrow more than the limit, but you'll need to make a down payment.
If you've never had a VA loan or have repaid a previous VA loan in full, you're not subject to federal loan limits. But you still may not be able to borrow as much as you want. Your lender will review your credit, income, debts and assets to decide how much you qualify for.
FHA loans
FHA loans have limits, which vary by county and may reset annually. The most you can borrow with an FHA loan ranges from $498,257 in low-cost counties to $1,149,825 in high-cost counties. See the FHA loan limit in your area at the Department of Housing and Urban Development website.
The takeaway: Unlike FHA loans, VA loans don't have federal limits for many borrowers.
Mortgage insurance and fees
Mortgage insurance reimburses the lender if you default on the loan. It’s an expense to calculate when getting a mortgage.
VA loans
VA loans don’t require mortgage insurance. Instead you pay a one-time VA funding fee, which ranges from 1.25% to 3.3% for purchase mortgages as of April 7, 2023. The fee amount depends on your down payment amount and whether you’ve had a VA-backed loan before. You can pay it up front or roll it into the loan.
FHA loans
FHA loans require mortgage insurance. You pay an upfront insurance premium, or fee, and an annual premium, which is divided into monthly installments and added to your mortgage payment. Like the VA funding fee, you can roll the upfront cost into your FHA loan. The upfront premium is 1.75% of the loan amount. The annual premium ranges from 0.15% to 0.75% of the loan amount, depending on the loan and down payment amounts, and the length of the loan term.
» MORE: FHA mortgage insurance
The takeaway: Include the cost of the VA funding fee and FHA mortgage insurance when comparing loans.
Credit score requirements
VA loans
The VA doesn’t specify a minimum credit score for VA home loans, but lenders can set their own thresholds. A minimum credit score in the mid-600s is a common requirement. The average credit score of borrowers whose VA purchase mortgages closed in the last 30 days as of June 19, 2024, was 725, according to ICE Mortgage Technology, a mortgage data provider.
FHA loans
The lowest score you can have and still qualify for an FHA loan is 500. But a score of at least 580 is required for a down payment of 3.5%. A 10% down payment is required for borrowers with a credit score of 500 to 579. The average credit score FHA purchase mortgages closed in the last 30 days as of June 19, 2024, was 686, according to ICE Mortgage Technology.
The takeaway: An FHA loan might be an alternative if your credit score is too low to meet VA lender requirements.
Maximum debt-to-income ratios
Your debt-to-income ratio is the percentage of gross monthly income you pay toward debt, including the mortgage.
VA loans
The VA does not set a maximum DTI. But it requires that loan applicants with a DTI of more than 41% undergo a closer review to make sure they will have enough money to cover living expenses after making mortgage and other debt payments.
FHA loans
The maximum debt-to-income ratio for FHA loans is generally 47%, although the threshold may be lower, depending on your credit score or other factors.
The takeaway: Regardless of the mortgage type, lenders will consider your debt-to-income ratio to weigh your ability to make mortgage payments. Paying down debt to improve your DTI can help you qualify for a mortgage at better rates.
Average mortgage rates
Generally, VA loans have slightly lower mortgage interest rates. For example, the average 30-year fixed rate for VA loans was 6.47%, compared with 6.73% for FHA loans closed in the 30 days ending June 3, 2024, according to Optimal Blue’s Mortgage Market Indices. Mortgage rates also depend on your financial characteristics, including your credit score, income and debt.
The takeaway: With any type of mortgage, lenders generally give the best rates to borrowers with high credit scores and low debt-to-income ratios.
