Did you know that the US has the third lowest percentage of homeowners who own their properties without mortgages? While home loans pave the way for many to buy their dream homes, choosing the right loan is a decision you shouldn't take lightly.

Both Federal Housing Administration (FHA) and Veterans Affairs (VA) loans break traditional barriers to homeownership. However, they're meant for different kinds of buyers. Below, we discuss what separates FHA and VA loans to help you decide which category you fall in.

 

FHA vs. VA Loans: How They Differ

Eligibility

The main difference between FHA and VA loans is that all qualified borrowers can access the former, while the latter is specifically for military service members, eligible surviving spouses, and veterans. Due to this, the eligibility criteria for FHA loans are based on creditworthiness and financial benchmarks. For VA loans, it revolves around military service requirements.

 

Mortgage Rates

On average, the APR for a 30-year FHA loan is around 6.9% compared to the 6.6% of a 30-year VA loan. These figures may fluctuate periodically, so you must compare them at the time of loan selection if you're eligible for both loan types.

 

Mortgage Insurance

You need to pay a mortgage insurance premium for FHA loans so that if you default, the lender still gets reimbursement from the insurance fund. Meanwhile, there is no mortgage insurance for a VA loan. However, there's an upfront funding fee that depends on factors like your military service and loan amount.

 

Down Payment

Your credit score determines the down payment you pay for an FHA loan. If your credit score is between 500 and 579, you pay 10% in down payment. Individuals with credit scores of 580 or higher pay 3.5% minimum. VA loans don't come with a downpayment requirement if you have full VA entitlement. That means you can finance your home's 100% value.

 

Credit Score Requirements

FHA loans are more welcoming to buyers with less-than-perfect credit. While many lenders look for a score of at least 580, some may still work with you if your score is lower. However, you'll have to put more money upfront in this scenario.

VA loans don't have a fixed minimum credit score from the government. Lenders assess your overall financial standing to determine if you're suitable. A credit score of around 620 is often used as a reference point, but it's not a hard cutoff.

 

Property Requirements

Both FHA and VA loans are meant for people to buy their primary residences. In simple words, the borrowers must occupy the property. FHA loans come with property standards for the soundness and safety of the property. An appraisal is needed before the loan is financed. Similar property requirements apply to a VA loan with an appraisal to confirm Minimum Property Requirements (MPRs) are met.

 

Debt-to-Income Ratio

FHA loans typically allow up to 43% debt-to-income ratio, which can be higher if you have strong credit. In contrast, VA loans don't enforce strict debt-to-income limits but generally prefer 41% or lower. You can use a debt equity calculator to determine your debt ratio.

 

Loan Limits

The caps on FHA loans vary by state and county. Commonly, these limits are up to $524,225. If you still have your full VA entitlement, you won't face a maximum loan limit in a VA loan. However, for people with used VA entitlement, limits may apply.

 

Time to Make Your Choice

If you or your spouse are not veterans or aren't currently active members of the military, you have no choice but to go for FHA loans. For active or former military members, VA loans come with better benefits, like no down payment, no mortgage insurance, and flexible credit standards. If you've used up a significant portion of your VA entitlements, weigh the pros and cons of both loan types to then decide if an FHA home loan may be a better pick.

 

Published 7/1/25