FHA vs VA Loan: Which Is Better?

When buying, improving, or refinancing a home, you may weigh your options between a VA loan and FHA loan. Veterans Affairs (VA) loans and Federal Housing Administration (FHA) loans are two types of government-backed mortgages. A big advantage to both of these options is they usually offer lower interest rates compared to conventional loans. However, there are key differences in requirements between VA and FHA loans. In order to make an informed decision that aligns with your homeownership goals, let’s explore the primary differences between FHA and VA loans.

What is an FHA loan?

An FHA loan is a mortgage insured by the Federal Housing Administration. FHA loans are available to all types of borrowers, not just military members or veterans. They’re particularly appealing to first-time homebuyers because applicants can qualify with a down payment as low as 3.5% and a credit score as low as 500 (which is lower than the conventional loan minimum of 620).

What is a VA loan?

A VA loan is a mortgage option issued by approved private lenders and partially backed by the U.S. Department of Veterans Affairs. VA loans are available exclusively to service members, veterans, and eligible surviving spouses. This loan program helps those who have served our country purchase a home without needing a down payment or excellent credit.

Eligible borrowers can obtain VA loans to buy, build, or improve their homes. You can also use VA loans to refinance an existing mortgage to get a new interest rate and different loan terms or to borrow money against the home.

Differences between FHA and VA loans

FHA loans don’t require military service like VA loans

Only eligible U.S. military service members may apply for a VA loan. When applying, you must provide a DD214 Form and certificate of eligibility (COE) to verify your military service and the number of days served. Surviving spouses of military service members must meet additional requirements to qualify for a VA loan.

FHA loans are available to most homebuyers regardless of their military status if they meet the basic qualifications for income, credit, debt and loan amount. 

VA loans don’t require a down payment, while FHA loans do

FHA loans typically require a minimum 3.5% down payment, but the minimum may be as high as 10% if your credit score is lower than 580. While there’s no down payment requirement with a VA loan, VA loan borrowers who put down more than 5% benefit from lower VA funding fees.

FHA lenders accept credit scores as low as 500, VA lenders as low as 580

Most VA and FHA lenders require a minimum FICO credit score of 620 to minimize their lending risk. Your FICO score is based on your payment history, length of credit history, new credit, and existing debts. 

Under certain circumstances, some lenders may accept lower credit scores if other criteria are met to mitigate the additional risk they’re taking. For example, VA lenders may qualify you with a credit score as low as 580 if you make a down payment. 

The max DTI for an FHA loan is 55%, while VA loans may go as high as 70%

All lenders will assess your debt-to-income ratio (DTI) when you apply for a home loan. Your DTI expresses your ability to manage debt, which gives lenders an idea of your ability to keep up with your monthly mortgage payments on top of any recurring debts you may have.

Most lenders require DTIs below 50%. Some FHA lenders will accept a DTI as high as 55%, and VA lenders may accept DTIs as high as 70%. A lower DTI can help you qualify for better mortgage rates and more loan options, which can help you live more comfortably.

VA loans don’t require mortgage insurance, FHA loans do

Lenders also require borrowers to purchase mortgage insurance when lending money. The policy protects the lender if borrowers fall behind on their mortgage payments. FHA loans come with a mortgage insurance premium (MIP), which is partially paid upfront and then with the monthly mortgage payment.

VA loans are one of the few mortgages that do not require mortgage insurance since they are backed by the Department of Veterans Affairs (VA). Instead of mortgage insurance, the VA charges a one-time funding fee that can be paid at closing or rolled into the loan amount.

Loan limits are a qualifying factor for FHA loans but not VA loans

Eligible service members and surviving spouses don’t have to worry about loan limits for properties over $144,000 as long as they adhere to specific stipulations. For instance, any previous VA loans must be paid in full, and the property associated with that loan must be legally sold.

FHA loan limits change yearly as the market fluctuates. Depending on where you live, they can range from $524,225 to $1,814,625 for a single-unit property, as of 2025. These loan limits also vary by property type, state, and county.

Similarities between FHA and VA loans

Both FHA and VA loans are government-backed

A government-backed loan is a mortgage insured by a federal government agency. The Federal Housing Administration backs FHA loans, and the Department of Veterans Affairs backs VA loans. 

By insuring FHA and VA loans, these agencies significantly reduce the risk to lenders offering them. This enables FHA and VA lenders to offer rates and financial requirements different from conventional loans.

Properties must meet specific standards to qualify for FHA and VA loans.

VA and FHA loans require the home to meet specific standards in terms of its condition to protect the borrower.

The VA has a set of standards known as the Minimum Property Requirements (MPRs) to assess property, and the FHA has Minimum Property Standards (MPSs).

VA and FHA lenders require homes to be safe and structurally sound. They may not be close to potential hazards, such as high-voltage power lines, high-pressure petroleum lines, or oil and gas wells. They also require homes in or near natural disaster areas to have adequate insurance coverage.

Interest rates are typically lower for FHA and VA loans.

VA and FHA loans typically have lower interest rates since they’re backed by the government, minimizing the lender's risk. Remember that the interest rate you qualify for is based on financial factors, such as credit score and history, amount of debt, income, and down payment. 

View current mortgage rate trends to get an idea of your interest rates for either loan type.

Is a VA loan better than an FHA loan?

If you're eligible, a VA loan is the better option, as it allows you to purchase a home with no down payment and no mortgage insurance. However, FHA loans are excellent options for non-service members with lower credit scores. 

Of course, if you’re eligible for both, you’ll want to take the time to consider which will make the most sense for your present financial situation and future homeownership goals.

Why choose a VA loan?

• No down payment requirement
• No mortgage insurance
• Lower interest rates
• Limited closing costs

Why choose an FHA loan? 

• Down payments as little as 3.5%
• Lower credit score requirements
• Interest rates are typically lower than conventional loans

Determining whether a VA loan is better than an FHA loan depends largely on your individual circumstances, including your military service, financial situation, and long-term homeownership goals. For veterans, active military members, and eligible surviving spouses, VA loans offer compelling benefits that are hard to overlook, such as no down payment and no requirement for mortgage insurance. However, an FHA loan provides a great alternative for those who may not qualify for a VA loan with its lower credit score and down payment requirements.

Are you looking for a VA or FHA mortgage to finance your next home purchase? Contact one of our loan officers at Zillow Home Loans to learn more and see how much you’re pre-qualified to borrow.*

*Zillow Home Loans, an equal housing lender. NMLS ID#10287