FHA Loan vs. VA Loan: Which Mortgage is More Suitable for You?

A stack of dollar bills and a model house on a scale, comparing FHA Loan vs. VA Loan suitability.

If you are in the process of buying a home, one of the first questions that must have come up is, what type of mortgage should I get? Now, most people only think about conventional mortgages, however, there are some very good alternatives with great benefits such as the VA loan and the FHA loan.

The VA Loan program is a mortgage that is insured by the Department of Veterans Affairs. The VA loan has several benefits such as no minimum down payment or credit requirements, however, they have a strict eligibility requirement that has to be met.

The FHA Loan program is a mortgage that is insured by the Federal Housing Association. It does not have the same strict eligibility criteria as VA loans, however, it does have other debt requirements.

The following table provides a summary of all the major differences between VA loans and FHA Loans:

Criteria VA Loan FHA Loan
Special Eligibility Yes – Veterans No
Minimum Down Payment 0% 3.5%
Minimum Credit Score No minimum 500
Mortgage Insurance No Insurance;

One-time VA Funding Fee

Upfront FHA MIP +

Annual Variable MIP

Premium Amount Funding Fee: 0 – 3.6% Upfront: 1.75% +

Annual: 0.45% – 1.05%

Debt-to-Income (DTI) Ratio DTI Ratio < 41% DTI Ratio < 43%
Loan Limits No Limit County Limit


1. Special Eligibility

VA loans have very special eligibility and that is that you are a veteran or a spouse of a veteran. This requirement is essential because all borrowers need a Certificate of Eligibility (COE) which shows the number of days and the branch they served. Now, if this requirement is not met then even if you want to get the VA loan it will not be possible.

FHA loans do not have any special eligibility requirements.

Winner: FHA Loans

2. Minimum Down Payment

When it comes to the minimum down payment, there is no beating a VA loan, officially there is no minimum down payment requirement! Yes, that’s correct you can get a full mortgage without a single dollar spent upfront. This is one of the biggest advantages compared to any other mortgage program.

FHA loan on the other hand requires a minimum down payment of 3.5%. On a $300,000 home, this means a down payment of $10,500 ($300,000 * 3.5%). Both loan programs are better than a conventional mortgage which requires a 20% down payment without insurance.

Winner: VA Loans

3. Minimum Credit Score

VA loans do not have a minimum credit score requirement. Veterans can apply with any credit score and can still have access to a mortgage. However, the average loan provider expects a credit score of at least 620. Therefore, even though there is not an official credit requirement, lenders who provide the loan require certain creditworthiness.

FHA loans are known for their lower credit requirements. They only require a credit score of 500 if a down payment of 10% is made, whereas, a credit score of at least 580 is required for a down payment of 3.5%.

Winner: FHA Loans

4. Mortgage Insurance & Premium

VA loans do not require mortgage insurance, instead, they require borrowers to pay the VA funding fee. The funding fee ranges from 0% to 3.6% of the loan amount. For example, on a $300,000 loan, the funding fee can range from $0 to $10,800. The VA funding fee rate is determined by the military service, amount of down payment, and whether you have had a VA loan in the past.

FHA loans on the other hand require ALL borrowers using FHA loans to get FHA Mortgage Insurance Premium (MIP). There is an upfront fee along with an annual variable fee. The upfront fee is 1.75% of the loan amount whereas the variable fee is 0.45% – 1.05%. The annual variable fee is based on the amount of down payment, fixed or variable, and

length of the term.

Winner: VA Loans

5. Debt-to-Income (DTI) Ratio

The DTI ratio is a very important financial metric used by lenders to determine how much debt the borrower can manage and repay. The calculation of the ratio is simple, you divide your total monthly debt by your gross monthly income. For example, if you have debt and credit payments of $2,000 and your monthly income is $5,000 then your DTI ratio is 40% ($2,000/$5,000).

VA loans have a DTI ratio requirement of less than 41%, therefore, no more than 41% of your monthly income can be going towards debt repayments. For example, if your annual salary is $60,000, your monthly income is $5,000 ($60,000/12), no more than $2,050 ($5,000 * 41%) should be going towards debt.

FHA loans have a higher limit of 43%, using the same $60,000 example, FHA loan lender will require your monthly debt payments to be less than $2,150 ($5,000 * 43%).

Winner: FHA Loans

6. Loan Limits

VA loan limits were removed in 2020, giving VA borrowers full flexibility to borrow as much as they can as long as they meet the other eligibility criteria and lender requirements.

FHA loan limits still exist and can vary from county to county. The majority of counties have an FHA loan limit of $256,362. Higher-cost regions have a loan limit of $822,375.

Winner: VA Loans

In conclusion, both VA loans and FHA loans got a tie of 3-3 out of our 6 criteria. Now the important thing to note is, only veterans will be making the choice between VA loan and FHA loan. The reason being that an individual who is not a veteran will not be able to take a VA loan, this is the biggest drawback of VA loans. As compared to FHA loans which are available to everyone.

However, if you can take both loans, the VA loan is a better option as there are no minimum down payment requirements, credit score requirements, and no insurance payments! In any case, whichever decision you take, be sure to check if it satisfies your long-term goals, Good luck!

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