VA Loan vs. FHA Loan: Which Is Better for Veterans?
Down payment, mortgage insurance and eligibility side by side.
If you are eligible for both, a VA loan is usually the cheaper option. But the two loans work differently, and a comparison of the details shows why.
Side-by-side comparison
| VA loan | FHA loan | |
|---|---|---|
| Who can get it | Eligible veterans, service members and certain surviving spouses | Any borrower who meets FHA and lender requirements |
| Down payment | Not required for eligible borrowers | As low as 3.5% |
| Mortgage insurance | No monthly mortgage insurance | Required, with an upfront premium and annual premiums |
| Upfront fee | VA funding fee (1.25% to 3.30% on a purchase), or $0 if exempt | Upfront mortgage insurance premium |
| Backed by | U.S. Department of Veterans Affairs | Federal Housing Administration |
FHA figures come from HUD and the Consumer Financial Protection Bureau. Your lender sets its own credit and income standards on top of them.
The mortgage insurance difference
Mortgage insurance is required for all FHA loans and has both an upfront and an annual component, and it usually continues for years. VA loans replace it with a one-time funding fee, which you can finance and which some borrowers do not pay at all. Over the life of a loan, that difference can be large.
When FHA can still make sense
- You are not eligible for a VA loan.
- Your lender offers a better overall deal on FHA for your credit profile. Always compare real quotes.
- You want to keep your VA entitlement untouched for a later purchase.
Example: the same $300,000 home with each loan
Both loans are at 6.25% for 30 years. The VA borrower is a first-time user who puts nothing down and finances the 2.15% funding fee. The FHA borrower puts 3.5% down, finances the 1.75% upfront mortgage insurance premium, and pays the 0.55% annual premium that applies to most loans of this size. Taxes and insurance are left out because they would be the same.
| VA loan | FHA loan | |
|---|---|---|
| Down payment | $0 | $10,500 |
| Upfront charge (financed) | $6,450 funding fee | $5,066 upfront MIP |
| Loan amount | $306,450 | $294,566 |
| Monthly principal and interest | $1,887 | $1,814 |
| Monthly mortgage insurance (approx.) | $0 | $133 |
| Total paid in the first 5 years (down payment plus payments) | $113,212 | $127,283 |
In this example the FHA loan costs about $14,071 more over the first five years, mostly because of the monthly mortgage insurance. The gap keeps growing because FHA mortgage insurance lasts for the life of the loan on most FHA loans with less than 10% down. Run your own price and rate in the VA vs FHA calculator.
How to compare for your situation
- Get quotes for both loans with the same price, term and lender.
- Compare total monthly cost, including mortgage insurance for FHA.
- Run both loans through our VA vs FHA loan calculator, which adds the funding fee and FHA mortgage insurance for you.
You may also want to read our comparison of a VA loan and a conventional loan.
Frequently asked questions
Is a VA loan cheaper than an FHA loan?
Often, for eligible borrowers, because VA loans have no monthly mortgage insurance and no required down payment. Compare real quotes to be sure.
What is the minimum down payment for an FHA loan?
According to HUD, FHA loans allow down payments as low as 3.5 percent.
Does an FHA loan require mortgage insurance?
Yes. Mortgage insurance is required for all FHA loans and includes upfront and annual components.
Can I have both a VA loan and an FHA loan?
You can apply for either, and in some cases hold both, if you qualify for each. Ask your lender about your situation.
Which one is easier to qualify for?
Both require lender approval. FHA can be more flexible on credit history, but a VA loan is usually cheaper if you are eligible.
FHA loan vs VA loan: which is better?
If you are eligible for a VA loan, it usually wins: no down payment, no monthly mortgage insurance, and a one-time funding fee of 1.25% to 3.3% that is waived for many veterans with a disability rating. An FHA loan makes sense when you are not VA-eligible, when your entitlement is tied up in another home, or when a specific lender's FHA offer works out cheaper. Compare both side by side in our VA vs FHA loan calculator.
What is the difference between FHA and VA mortgages?
Who backs them (the Federal Housing Administration, part of HUD, versus the Department of Veterans Affairs); who can use them (any qualifying borrower versus eligible service members, veterans and certain spouses); the minimum down payment (3.5% versus 0%); the insurance cost (FHA charges an upfront 1.75% premium plus an annual premium for most of the loan's life, while VA charges a one-time funding fee and no monthly insurance); and loan limits (FHA has county limits, VA has none for borrowers with full entitlement).
Can you refinance an FHA loan into a VA loan?
Yes. An eligible veteran can refinance an FHA or conventional loan into a VA-backed loan with a VA cash-out refinance, which can also be used simply to change loan types without taking cash out. The VA IRRRL is only for loans that are already VA-backed.
Sources
This page is educational and is not legal, tax or financial advice. Rules and rates can change, so confirm the details with the VA and your lender.