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Both FHA and VA home loans come with attractive benefits, including flexible lending guidelines, often-competitive interest rates and low down payments.
What are FHA vs. VA loans?
FHA loans are backed by the Federal Housing Administration (FHA) and are ideal for first-time homebuyers or borrowers who don’t qualify for conventional loans. They also come with lower minimum credit score and down payment requirements.
VA loans are another government-insured mortgage. Guaranteed by the U.S. Department of Veterans Affairs (VA), they’re available to eligible active-duty service members, veterans and their spouses. The main draw of a VA loan: no down payment.
In addition to using these loans to purchase a home, it’s possible to refinance a mortgage using either of these programs.
Comparing FHA vs. VA loans
| FHA loan | VA loan | |
|---|---|---|
| Eligibility | Anyone who meets FHA loan requirements | Active-duty military service members, veterans and spouses |
| Property type | Primary residence | Primary residence |
| Down payment | At least 3.5% | No down payment required |
| Credit score | As low as 500 | No requirement, but lenders prefer scores of 620 or higher |
| DTI ratio | Up to 50% | Up to 41% |
| Mortgage insurance | Upfront and ongoing mortgage insurance premiums (MIP) | Upfront funding fee |
| Current interest rate (30-year fixed-rate purchase) | FHA loan rates | VA loan rates |
| Cash-out refinance? | Yes (up to 85%-95% LTV) | Yes (up to 100% LTV) |
Eligibility for FHA vs. VA loan
Anyone who meets the credit score, down payment and DTI ratio requirements can apply for an FHA purchase or refinance loan. To get a VA loan, you must be active-duty military, a veteran or military spouse. You’ll also need a certificate of eligibility (COE).
Down payment for FHA vs. VA loan
The down payment for an FHA loan is at least 3.5 percent. If your credit score is between 500 and 579, you’ll need a 10 percent down payment By comparison, a VA loan can be had for no money down.
Credit score requirements for FHA vs. VA loan
The VA doesn’t have minimum credit score criteria. Many VA lenders, though, like to see a credit score of at least 620, so if your score is lower, you might have limited loan options. The FHA allows for a lower credit score: as low as 580 (or 500 with a 10 percent down payment).
Mortgage insurance for FHA vs. VA loan
With an FHA loan, even on a refinance, you pay an upfront fee, plus an ongoing mortgage insurance premium. The idea is that if you default on the loan, the lender is reimbursed from the mortgage insurance fund.
You don’t pay mortgage insurance with VA loan purchase or refinance loans. Instead, you pay an upfront funding fee based on your loan amount and your military service, as well as other factors.
With both types of loans, you can choose to pay the fee separately or roll the fee into the total cost of the loan.
Mortgage rates for FHA vs. VA loan
Both loan programs can sometimes offer appealing rates. As of May 24, 2023, the average 30-year FHA APR was 7.23 percent, compared to a 6.60 percent for a 30-year VA loan, according to Bankrate. Compare that to 7.08 percent for a 30-year conventional loan.
FHA vs. VA loan refinancing
If you meet the qualifying criteria, you can refinance either an FHA or VA loan, or refinance another type of loan into one of these types of loans, to lower your interest rate, shorten your loan term or take cash out. Both programs have a “streamline” option that minimizes paperwork and underwriting.
Which loan option is right for you?
Although FHA loans are accessible to more borrowers, VA loans could be the better option if you’re eligible. You could qualify for a VA loan with no money down, and the interest rates are often lower compared to FHA loans. If you don’t qualify for a VA loan, an FHA loan could be a viable alternative if you aren’t eligible for a conventional loan.
