Choosing the right loan type for your home purchase or refinance can make all the difference in your homeownership experience. VA and FHA loans are some of the most popular mortgages, and for good reason. Both offer low down payments, flexible credit requirements, and competitive interest rates. So, if you qualify for both FHA and VA loans, how do you choose? Let’s break down the key similarities and differences between the two, including:
- Who qualifies
- Down payment and credit requirements
- Types of VA and FHA loans
- Long-term benefits of FHA vs. VA loans
VA vs. FHA Loans: Who Qualifies
One of the biggest differences between VA and FHA loans is the type of borrower who is eligible to apply. While essentially anyone can apply for an FHA purchase or refinance, VA loans are only available for veterans, active service members, and eligible surviving spouses. VA loans are a well-earned benefit of military service, and as such they offer some of the most competitive features around.
Pro Tip: FHA loans are often primarily thought of as a great choice for first-time buyers, but you don’t have to be a first-timer to qualify.
VA vs. FHA Loans: Down Payment and Credit Requirements
Down payments and credit scores are two key factors in your home loan eligibility. Both FHA and VA loans are backed by government agencies, which means they typically offer lower credit score requirements than Conventional loans.
- Minimum down payment of 3.5% for borrowers with credit scores of 580 or higher
- 10% down payment required for credit scores between 500-579
- Debt-to-income ratio typically capped at 43% (with exceptions possible up to 50%)
- Mandatory mortgage insurance premiums (both upfront and annual)
VA Loan Requirements:
- No down payment required in most cases
- Credit scores as low as 550
- More flexible debt-to-income ratios, often allowing up to 41% or higher
- No monthly mortgage insurance requirement
- One-time funding fee (which can be rolled into the loan)
Types of VA and FHA Loans
Whether you’re buying a home or refinancing your mortgage, you’ve got FHA and VA loan options. Both loan types provide similar products, including streamlined refinances that help you save time and paperwork.
Popular VA Loan Types:
- Purchase loans with fixed or adjustable rates
- Streamline refinance (also called an IRRRL, or Interest Rate Reduction Refinance Loan)
- Cash-out refinance options
- Adapted Housing Grants for veterans with service-connected disabilities
Popular FHA Loan Types:
- Cash-out refinance
- Purchase loans with fixed or adjustable rates
- 203(k) rehabilitation loans for fixer-uppers
- Streamline refinance
Long-Term Benefits: FHA vs. VA Loans
Buying a home is a big initial investment, but it’s important to also consider which loan will serve you best in the long term.
FHA Long-Term Considerations:
- Mortgage insurance premiums typically last for the life of the loan if your down payment is less than 10%
- Higher overall cost of borrowing due to mortgage insurance requirements
- Easier to qualify initially, but potentially more expensive over time
- Good stepping stone to conventional financing through refinancing once equity is built
VA Long-Term Considerations:
- No ongoing mortgage insurance costs could create significant savings over the life of the loan
- More competitive interest rates on average
- Assumable mortgage terms (allowing a qualified buyer to take over your loan terms)
- No prepayment penalties
- Lifetime benefit that can be used multiple times
Ultimately, the right choice between FHA and VA loans depends on your eligibility, financial circumstances, and long-term homeownership goals. For those who qualify for both, the VA loan typically offers superior financial benefits, while the FHA program provides crucial access to homeownership for those who might otherwise be excluded from the housing market. Still not sure what’s right for you? We’re here to help.
Ultimately, the right choice between FHA and VA loans depends on your eligibility, financial circumstances, and long-term homeownership goals.
