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FHA vs. VA loans
Ease the financial burden of buying a home with these government-backed loans.
Buying a home is among the biggest and most exciting commitments you’ll ever make. But how do you choose the right financing? Like every mortgage, FHA and VA loans have their advantages and disadvantages.
How do FHA and VA loans compare?
Both are government-backed mortgage programs, but they come with different eligibility requirements, terms and loan limits.
| FHA loans | VA loans | |
|---|---|---|
| Eligibility | Anyone who meets the income and credit score requirements | Eligible veterans and surviving spouses who have not remarried |
| Institutional support | Federal Housing Administration | Veterans Administration |
| Credit score requirement | 500+ | None |
| Down payment | starting at 3.5% | None |
| Lender options | Any FHA-approved lender | Any VA-approved lender (The VA can lend directly, but it’s rare.) |
| Interest rates | Subject to market conditions and negotiable between the lender and borrower | Subject to market conditions and negotiable between the lender and borrower |
| Types of properties | – Single-family homes and 2- to 4-unit properties – Select manufactured and mobile homes – FHA-approved condos and townhomes | – Single-family homes and 2- to 4-unit properties – Select manufactured, mobile and modular homes – VA-approved condos – Select construction sites |
| Owner-occupancy requirement | Yes | Yes |
Learn more about FHA loans | Learn more about VA loans |
When should I choose a FHA loan?
If you’re a first time buyer with low to median income, and FHA loan could be for you. It’s lenient eligibility requirements make it a good option for borrowers with high debt-to-income ratio and low credit scores.
To avoid being blindsided, factor the required mortgage insurance into your budget. You’ll pay an upfront premium at closing and then make monthly payments for the life of the mortgage.
When should I avoid a FHA loan?
Avoid an FHA loan if you’re buying in an area with a low supply and high demand. FHA have a lower loan ceiling, so FHA loans may not cover the cost of the home you need. Additionally, heavily discounted homes, fixer-uppers and condos might not qualify for a FHA loan.
When should I choose a VA loan?
Consider applying for a VA loan if you or family member is a part of the military. It doesn’t require a down payment or mortgage insurance, cutting down on overall costs. It also comes with attractive tax perks and relaxed credit requirements.
When should I avoid a VA loan?
Avoid a VA loan if you found a home that needs a lot of work — VA loans can have strict home assessments. And you’ll be on the hook for 5% down if you’re looking at a manufactured home.
Additionally the VA doesn’t guarantee the full amount of your loan. You may need to meet additional requirements from the bank.
Bottom line
While FHA loans are flexible and easier to apply for, borrowers are hit with monthly insurance payments that last the life of the mortgage. But VA loans are exclusive: Requiring no down payment, they’ve opened the homeownership doors to many military members.
Compare your home financing options in our comprehensive guide to mortgages.
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