Two government-backed mortgages, both sold on the same promise: a small down payment and a way in for buyers who don’t fit the conventional mold. But the FHA loan and the VA loan are built on completely different fee structures, and the gap between them runs into five figures over 30 years. It can also flip the other way the moment your credit score or your condo building doesn’t cooperate.
Here’s what the comparison looks like with actual numbers attached.
Eligibility Settles Half the Debate Before It Starts
VA loans are earned. You need a Certificate of Eligibility from the VA: typically 90 days of wartime active duty, 181 days in peacetime, six years in the Guard or Reserves, or eligibility passed to a surviving spouse. With that certificate in hand, you’re choosing between two loans. Without it, FHA is your low-down-payment route and the rest of this is academic.
FHA has no service requirement. Lawful residency, a Social Security number, a credit score of 500 or better, and you can apply.
Down Payment: 3.5% vs. Nothing
On a $350,000 house, FHA wants $12,250 at the 3.5% minimum. VA wants $0 with full entitlement, and the program allows that down payment to come from a gift or a qualifying grant.
Your score changes the FHA number
At 580 or above, 3.5% is the floor. Between 500 and 579, FHA requires 10% down, which is $35,000 on that same house. That band catches a lot of buyers off guard.
Mortgage Insurance vs. a One-Time Funding Fee
This is the real fork in the road.
FHA charges an upfront premium of 1.75% of the base loan amount. On a $337,750 base loan (the $350,000 price minus 3.5% down), that’s $5,910, financed into the balance. Then the annual premium kicks in at 0.55% for a 30-year loan with less than 10% down, which works out to roughly $158 a month.
It doesn’t go away at 20% equity. On a 30-year FHA loan with the minimum down payment, mortgage insurance lasts the life of the loan. Put 10% down and it drops off after 11 years. That single rule is worth tens of thousands, and it’s the part of the program that FHA loan pros and cons tends to bury under the down payment headline.
Do the arithmetic on that $158: 360 payments comes to about $56,900. Add the upfront premium and you’re past $60,000 in insurance on a $350,000 house.
VA takes a different approach. One funding fee, financed, no monthly insurance ever. First use with nothing down is 2.15%, or $7,525 on a $350,000 loan. Put 5% down and it drops to 1.5%; 10% down brings it to 1.25%. Veterans receiving VA disability compensation pay nothing, and neither do eligible surviving spouses. Roughly a third of VA borrowers fall into that group.
VA rates also tend to price a quarter to a half point under FHA. Half a point on $350,000 is about $120 a month, which makes the gap wider than the funding fee alone suggests.
Credit and Income Underwriting
FHA publishes a 500 floor. VA publishes no floor at all; the agency itself has no minimum score requirement, but lenders add overlays, usually 580 to 620. A borrower at 560 can get an FHA approval and will have real trouble finding a VA lender. FHA loans with a 580 credit score lays out where that line actually sits in practice.
Income flexibility tilts the other way. FHA will push debt-to-income to 50–57% through automated underwriting when compensating factors exist. VA starts at 41% but lets lenders exceed it when residual income clears the bar. That means what’s left each month after the mortgage and every other obligation, measured against a regional cost-of-living table. A veteran at 55% DTI with strong residual income gets approved while a similar FHA file gets denied.
Property Rules That Quietly Kill Deals
Both loans require an appraisal that checks minimum property standards: no peeling paint, functioning heat, safe electrical, a roof that doesn’t leak. A conventional appraisal is mostly a value exercise. These are not. VA adds its own Notice of Value and Minimum Property Requirements, and the reasonable value it assigns caps what the seller can get without the buyer covering the gap in cash.
Condos create the sharpest divide. FHA requires either full project approval or a single-unit approval. VA requires the building to be on its approved list. Plenty of buildings clear one program and not the other, and that difference decides your loan for you. It’s worth checking before you fall for a specific unit: what actually gets approved for an FHA condo covers the issues that sink contracts.
Two-to-four-unit buildings work under both programs, as long as the buyer occupies one unit. Buying a duplex with an FHA loan runs 3.5% down; VA runs zero. VA adds a self-sufficiency test, though, where the appraiser has to confirm market rents cover the mortgage payment. That test sinks deals on buildings with thin rental income.
Seller Concessions and Assumability
FHA caps seller concessions at 6% of the price. VA caps concessions at 4%, but separately allows the seller to cover all closing costs and prepaid items. In practice that often brings a VA deal to the table cheaper than FHA at the same price.
Both loans are assumable, which matters more than it did five years ago. A buyer can take over a 3% VA loan and keep the payment. FHA assumptions require the incoming borrower to qualify; VA assumptions are looser on credit review. With rates near 7%, an assumable VA loan is a genuine negotiating chip.
Where Each Loan Clearly Wins
- Veteran, full entitlement, single-family home, 700 score: VA. No down payment, no monthly insurance, and the funding fee is a rounding error next to $60,000 of FHA premiums.
- Veteran with a disability rating: VA, and it isn’t close. The funding fee disappears entirely.
- Buyer with no military service: FHA at 3.5%, unless score, DTI, or condo rules push you elsewhere. At that point the comparison that matters becomes FHA versus conventional.
- Veteran who wants a condo VA won’t approve: FHA, assuming the building has FHA approval.
- Buyer with a 540 score: FHA with 10% down. Most VA lenders won’t touch it.
- Veteran buying a three-unit where rents are tight: FHA, because there’s no self-sufficiency test to fail.
Refinancing Later
VA has the easiest refinance product on the market. The IRRRL requires no appraisal, no credit underwriting, and no income documentation, just a certificate that you occupied the home. FHA Streamline is similarly light but still requires a net tangible benefit to the borrower. The bigger issue is the exit: an FHA borrower who wants to shed mortgage insurance has to refinance into a conventional loan, which means a new appraisal and usually a higher rate. A VA borrower never carries insurance to begin with.
The Mistake Veterans Make
The most common version of this I see: a veteran with full entitlement takes an FHA loan because a seller’s agent pushed back on VA’s appraisal rules, or because the loan officer at the first bank they called didn’t offer VA. On a $350,000 purchase, that decision can cost $50,000 or more in mortgage insurance across the life of the loan, plus a slightly higher rate. If you’ve earned the entitlement, the VA loan is almost always the better financial instrument. The only reasons to step away are a building that won’t pass VA approval, a credit score under 580, or a purchase structure the program doesn’t allow. Everything else is a negotiating problem, not a loan problem.