If you’re comparing government-backed loans to conventional mortgages, you’re likely weighing Federal Housing Administration (FHA) and Department of Veterans Affairs (VA) options. Here’s the quick answer: FHA loans are aimed at broadening access with low down payments and flexible credit, but they require mortgage insurance. VA loans (for eligible service members, Veterans, and some surviving spouses) offer no down payment in many cases and no monthly mortgage insurance, but they include a one-time funding fee (often waived for disability). Within minutes, you’ll understand who qualifies, what they cost, how appraisals work, how to refinance, and how to shop smart.
Friendly disclaimer: This guide is educational and not financial, tax, or legal advice. Always review terms with your lender or advisor.
1. FHA vs. VA at a glance: who each program serves and why it matters
FHA and VA loans both reduce lender risk, but they serve different borrowers. FHA insures loans for a wide audience—especially first-time buyers—who may have smaller down payments or shorter credit histories. VA guarantees loans for eligible Veterans, active-duty service members, National Guard/Reserve members, and certain surviving spouses. The big headline: FHA typically requires a minimum 3.5% down payment (with qualifying credit), while VA often requires 0% down with full entitlement and sufficient income. VA borrowers also avoid monthly mortgage insurance, which can materially lower the total cost of homeownership compared with FHA. Understanding this split helps you pick the right path before you ever request a quote.
1.1 Why it matters
- FHA access isn’t tied to military service; VA is reserved for those with qualifying service and eligibility (via COE). Veterans Affairs
- VA’s hallmark benefit—no down payment with full entitlement and no loan limit—can expand buying power if you qualify.
1.2 Quick chooser
- Choose FHA if you need flexible credit standards and can budget for mortgage insurance.
- Choose VA if you’re eligible; the combination of $0 down (with full entitlement), competitive rates, and no monthly MI is hard to beat.
Bottom line: Start by confirming VA eligibility (COE). If you’re not eligible—or a lender quote shows FHA cheaper for your specifics—FHA is a powerful alternative.
2. Down payment, credit, and income rules (and what lenders really look for)
FHA allows a 3.5% minimum down payment when your credit score is 580+; borrowers with scores 500–579 generally need 10% down. VA loans typically don’t require a down payment at all (subject to entitlement and lender approval) and the VA doesn’t set a hard minimum credit score—lenders use internal overlays. VA emphasizes residual income (money left after major expenses) alongside a 41% debt-to-income (DTI) benchmark many lenders use as a guardrail. Practically, underwriters for both programs weigh your payment history, stable income, and the property itself.
2.1 Numbers & guardrails
- FHA minimums: 3.5% down at 580+; 10% down at 500–579 (policy framework).
- VA: No VA-set minimum score; lenders set overlays. Focus on residual income and affordability. (See VA Lenders Handbook, Ch. 4.)
2.2 Mini-checklist for approval
- Two years of verifiable income (or acceptable alternatives).
- Manageable DTI (lender-specific), with compensating factors (cash reserves, strong residual income).
- Clean, explainable credit history (late payments and recent derogatories require context).
Takeaway: For marginal scenarios, FHA’s published thresholds may help—while VA borrowers win on $0 down when residual income and overall profile are strong.
3. Mortgage insurance vs. funding fee: the cost trade-offs that change your APR
FHA loans include Upfront Mortgage Insurance Premium (UFMIP)—1.75% of the base loan amount—plus an annual MIP paid monthly (rates vary by term/LTV; reduced by 0.30 percentage points in 2023). VA loans don’t charge monthly MI; instead they charge a one-time funding fee (typically 2.15% for first-use with <5% down; 3.3% for subsequent use; lower if you put 5% or 10% down). Many Veterans with service-connected disability are exempt from the funding fee.
3.1 Example (purchase at $400,000)
- FHA: UFMIP 1.75% ≈ $7,000 financed; plus annual MIP.
- VA: First-use funding fee at 2.15% on $400,000 ≈ $8,600, typically financed into the loan; no monthly MI.
3.2 Why it matters
- FHA’s MIP is ongoing (until cancelation rules are met); VA’s funding fee is one-time, and many eligible borrowers are exempt, materially lowering lifetime costs.
Takeaway: If you qualify for VA and especially if you’re funding-fee-exempt, VA’s no-MI structure often wins on total cost. If not VA-eligible, build FHA’s MIP into your budget.
4. Loan limits and buying power (FHA caps vs. VA full entitlement rules)
For FHA, the 2025 single-unit loan limit ranges from $498,257 (floor) to $1,149,825 (ceiling) depending on county; higher limits apply to multi-unit properties. VA works differently: with full entitlement, there’s no VA loan limit—your cap is what you can afford and what the property appraises for. With partial entitlement, conforming loan limits (CLLs) can affect entitlement math.
4.1 Key facts
- FHA 2025 limits: single-unit $498,257–$1,149,825 by county.
- VA full entitlement: no loan limit; partial entitlement may tie to CLLs.
4.2 Tip
Ask your lender to run both FHA and VA scenarios with and without closing costs financed where allowed; financing a fee (FHA UFMIP or VA funding fee) slightly increases the loan amount and payment.
Bottom line: For higher prices, VA’s no-limit rule (with full entitlement) can unlock more home choices, while FHA caps may steer you toward price bands that fit the county limit.
5. Property standards and appraisals: safety, soundness, and valuation
Both programs require that the home be safe, sound, and sanitary. FHA relies on its Single-Family Housing Policy Handbook and appraisal guidance; VA uses Minimum Property Requirements (MPRs) and a VA appraisal. VA appraisals include processes like Tidewater, where the appraiser can request additional comps if value looks short, giving you a chance to support the contract price.
5.1 What underwriters expect
- FHA: Property must meet HUD’s minimum standards and appraisal reporting rules.
- VA: Property must meet MPRs before guaranty; appraisal ≠ inspection.
5.2 Buyer homework
- Always order a separate home inspection (not required by VA/FHA but strongly advised).
- Budget for health/safety repairs (handrails, peeling paint on pre-1978 homes, missing GFCI, etc.) to avoid delays.
Takeaway: Appraisal checks basic livability and value; inspection protects you. Know the difference to plan repair negotiations.
6. Occupancy rules and house-hacking: what’s allowed (and what isn’t)
FHA and VA loans are for primary residences. With FHA, at least one borrower generally must move in within 60 days and intend to occupy for at least one year. VA requires the borrower to intend to occupy within a “reasonable time,” typically 60 days (exceptions exist for deployment, spouse/child occupancy). Both programs allow up to four units (1–4) if you occupy one, which opens legitimate “house-hack” strategies.
6.1 Why it matters
- FHA: move-in and one-year occupancy expectations.
- VA: 60-day occupancy is the norm; 1–4 units permitted if you live in one.
6.2 Guardrails
- Don’t misstate occupancy—lenders and agencies treat occupancy fraud seriously.
- If life changes, talk to your servicer; rules allow legitimate exceptions (e.g., PCS orders).
Bottom line: Owner-occupancy is central to both programs; follow the rules and you can still leverage multi-unit opportunities.
7. Closing costs and seller concessions: who can pay what
Your closing costs (origination, title, taxes, prepaid items) vary by market and lender. Both programs allow the seller to help. FHA caps interested party contributions (seller, agents, builders) at 6% of the sale price. VA allows unlimited seller credits toward normal closing costs, but “seller concessions” (like funding fee payments, debt payoff, gifts, etc.) are capped at 4% of the reasonable value—a distinct limit separate from normal costs.
7.1 Quick rules
- FHA: Seller/other interested parties up to 6% toward allowable costs—not down payment.
- VA: Closing costs—no percentage cap; concessions capped at 4%.
7.2 Mini example
On a $450,000 VA purchase with $12,000 in typical closing costs, the seller could cover all allowable closing costs plus up to 4% ($18,000) in concessions (e.g., funding fee), subject to the Notice of Value.
Takeaway: Structure credits precisely—what’s a “closing cost” vs. a “concession” matters on VA.
8. Refinancing: FHA Streamline vs. VA IRRRL (and cash-out options)
Refis come in three common flavors: rate/term or streamline (FHA Streamline; VA IRRRL) and cash-out. The FHA Streamline can reduce documentation and often doesn’t require an appraisal; VA’s IRRRL is designed to lower the rate or change term on an existing VA loan with minimal underwriting. VA also allows cash-out refinancing; lenders set max LTVs and seasoning overlays. For FHA borrowers seeking cash, FHA cash-out is available but stricter than a streamline.
8.1 What to know
- VA IRRRL funding fee: 0.5% flat; minimal documentation.
- FHA Streamline: finances UFMIP if applicable; lender must document a net tangible benefit per FHA policy (rate reduction, term change, etc.). HUD
8.2 Pro tips
- Check breakeven months (cost ÷ monthly savings).
- Ask about seasoning (payment history/wait times) and occupancy nuances.
Bottom line: Streamlines are built for efficiency; cash-out requires deeper underwriting. Compare total costs and breakeven, not just the headline rate.
9. Rehab & specialty programs: FHA 203(k) and VA options
If the right home needs work, FHA’s 203(k) program wraps purchase + renovation into one loan. As of 2025, HUD shows Limited 203(k) up to $75,000 in eligible improvements and Standard 203(k) for larger projects requiring a consultant. VA doesn’t have a direct 203(k) equivalent, but allows certain energy-efficiency improvements and offers the Native American Direct Loan (NADL) for eligible Native American Veterans on trust land.
9.1 Keys for 203(k)
- Limited 203(k): streamlined scope; smaller projects; capped amount.
- Standard 203(k): larger rehabs; HUD consultant oversight.
9.2 VA notes
- Funding fee for NADL differs (e.g., 1.25% purchase, 0.5% for NADL refi, per VA funding fee charts).
Takeaway: If you want one loan to buy and fix, FHA 203(k) shines. VA borrowers should ask lenders about energy-efficient add-ons and NADL eligibility.
10. Assumability: a hidden advantage (and a risk if you’re selling)
Both FHA and VA loans are assumable—a qualified buyer can take over your existing loan, rate and all. That’s a major selling feature if rates rise. But sellers must handle entitlement risk on VA loans: if the buyer doesn’t substitute their entitlement, your entitlement can remain tied up until the assumed loan is paid off.
10.1 What the rulebooks say
- FHA: “All FHA-insured Single Family forward mortgages are assumable.”
- VA: Assumptions may be processed with or without substitution of entitlement; without substitution, the seller’s entitlement stays encumbered.
10.2 Seller checklist
- Require lender/servicer approval.
- For VA, push for substitution of entitlement (VA Form 26-8106) when possible. vba.va.gov
Takeaway: Assumability boosts marketability; just protect VA entitlement before you hand over the keys.
11. Underwriting mechanics: DTI, residual income, and AUS vs. manual
Underwriting is where guideline theory meets your actual file. For FHA, automated underwriting systems (AUS) like DU/LPA often drive approvals; manual underwriting can allow approvals with compensating factors but may cap DTI more tightly. VA’s philosophy centers on residual income—a region- and family-size-based test of room left in the budget after fixed expenses—while lenders still watch DTI (the 41% benchmark is common).
11.1 What improves your odds
- Low payment shock; verified reserves.
- Documented rental history if thin credit.
- Stable income and low revolving utilization.
11.2 Tools/terms to know
- AUS Approve/Eligible vs. Refer/Eligible outcomes.
- Residual income tables by family size/region (VA Lenders Handbook, Ch. 4).
Bottom line: A strong residual income (for VA) or compensating factors (for FHA) can turn a “maybe” into a “yes”—even if your DTI isn’t perfect.
12. How to comparison-shop FHA/VA lenders (the right way)
Quotes vary by lender—sometimes by thousands over the life of a loan. Get at least three written Loan Estimates and ask each lender to price the same scenario (same rate lock period, same points, same credits). For VA, confirm how they treat entitlement for high-balance scenarios and whether they’ll do manual underwrites when AUS is finicky. For FHA, scrutinize how they price MIP and whether they offer lender credits to offset closing costs.
12.1 A simple playbook
- Request no-points and 1-point quotes to compare trade-offs.
- Ask for rate locks that cover your target closing date.
- Verify turn times for appraisals (VA vs. FHA panels may differ by market).
- For VA, confirm how they handle seller concessions vs. closing costs.
12.2 Final tip
Track everything in a spreadsheet—APR, cash-to-close, monthly payment, and total cost over your expected hold period (e.g., 5–7 years).
Takeaway: Standardize your asks; apples-to-apples is the only way to see the real winner.
FAQs
1) What are government-backed loans?
They’re mortgages insured or guaranteed by a U.S. federal agency. The two most common for home purchases are FHA (insurance) and VA (guaranty). By reducing lender risk, they enable lower down payments or more flexible credit standards than many conventional loans, but each program has unique costs and rules (e.g., FHA MIP vs. VA funding fee).
2) How do FHA and VA down payments compare?
FHA allows 3.5% down with a 580+ score (10% at 500–579). VA often needs $0 down with full entitlement and sufficient income, subject to appraisal and lender underwriting. Your lender’s overlays still apply and can affect approval. Congress.gov
3) What’s the VA funding fee and who is exempt?
It’s a one-time fee (commonly 0.5%–3.3% depending on loan type, usage, and down payment). Veterans with qualifying service-connected disabilities (and certain others) are exempt. The fee can be financed. Check the VA’s official tables for your scenario.
4) How does FHA mortgage insurance work?
FHA charges UFMIP (1.75%) plus an annual MIP added to your monthly payment (rates vary by term/LTV; HUD cut annual MIP by 0.30 percentage points in 2023). Some loans with larger down payments can stop MIP after 11 years; many keep it for the life of the loan. Confirm details with your lender.
5) Are there loan limits?
FHA: yes—county-based. For 2025 the single-unit range is $498,257–$1,149,825.
VA: with full entitlement, no loan limit; with partial entitlement, conforming loan limits may apply.
6) What property issues commonly derail FHA/VA appraisals?
Safety and livability items: peeling lead-based paint, missing handrails, exposed wiring, nonfunctioning utilities, roof deficiencies, or water intrusion. VA MPRs and FHA appraisal guidance focus on safe, sound, sanitary homes; major defects must be corrected prior to closing.
7) Can I buy a 2–4 unit property with these loans?
Yes, both programs allow up to 4 units if you occupy one. That’s a common strategy to offset payments with rental income (subject to income-calculation rules and reserve requirements). VA’s handbook confirms 1–4 family units for purchases, provided occupancy is met.
8) How fast can I move in?
FHA: typically within 60 days and intend to stay a year.
VA: “reasonable time,” usually within 60 days (flexibility for deployments, spouse/child occupancy). Misstating occupancy can be fraud—don’t risk it. FHA.com
9) What’s a VA IRRRL or FHA Streamline?
They’re streamlined refinances for existing VA or FHA loans. They aim to reduce rate/term with less documentation and (often) no appraisal. VA IRRRLs carry a 0.5% funding fee; FHA Streamlines must show a net tangible benefit per HUD policy.
10) Are FHA/VA loans assumable?
Yes—subject to servicer/lender approval and qualification. For VA, protect the seller’s entitlement by pursuing substitution of entitlement where possible; otherwise, the seller’s entitlement remains tied up.
11) How do seller credits work on VA?
VA allows the seller to pay all normal closing costs (no percentage cap). Separate from that, seller concessions (like paying the funding fee or debts) are capped at 4% of reasonable value. The distinction is critical to structuring offers.
12) Where do I start?
Check VA eligibility (COE) if applicable; otherwise begin with a reputable FHA/VA lender. Gather docs (pay stubs, W-2s/1099s, two months’ statements). Request at least three Loan Estimates and compare APR, cash-to-close, and total cost over your expected holding period.
Conclusion
Government-backed loans expand access to homeownership—FHA by insuring lenders against losses and VA by guaranteeing loans for those who served. If you’re VA-eligible, the combination of $0 down, no monthly MI, and competitive pricing is often hard to beat—especially if you’re funding-fee-exempt. If you’re not VA-eligible, FHA remains a workhorse option with low down payments and predictable underwriting. Either way, the smartest move is to standardize your quotes (same lock, same points, same credits), budget realistically for closing costs and reserves, and understand how appraisals, occupancy, and assumability affect both approval and long-term flexibility. Use this 12-point framework to target lenders, structure offers, and plan refinances—so your loan supports your life, not the other way around.
CTA: Ready to compare? Gather your docs and request three side-by-side FHA/VA Loan Estimates today.
References
- VA Funding Fee and Closing Costs — U.S. Department of Veterans Affairs, last updated April 4, 2025. https://www.va.gov/housing-assistance/home-loans/funding-fee-and-closing-costs/ Veterans Affairs
- VA Home Loan Entitlement and Limits — U.S. Department of Veterans Affairs, August 12, 2025. Veterans Affairs
- Mortgagee Letter 2024-21: FHA Single Family 2025 Loan Limits — U.S. Department of Housing and Urban Development, November 26, 2024. https://www.hud.gov/sites/dfiles/OCHCO/documents/2024-21hsgml.pdf HUD
- FHA Single Family Housing Policy Handbook 4000.1 (information page & PDFs) — U.S. Department of Housing and Urban Development, various updates 2019–2025. HUD
- Appraisal Report and Data Delivery Guide — U.S. Department of Housing and Urban Development, May 20, 2024. HUD
- VA Lenders Handbook — Table of Contents (Ch. 4 Underwriting; Ch. 12 MPRs; Ch. 8 Fees & Funding Fee) — U.S. Department of Veterans Affairs, updates through 2024. benefits.va.gov
- Chapter 12: Minimum Property Requirements — U.S. Department of Veterans Affairs, October 18, 2019. benefits.va.gov
- VA Buyer’s Guide (Assumptions & Seller Concessions overview) — U.S. Department of Veterans Affairs, c. 2022. benefits.va.gov
- Are FHA-Insured Mortgages Assumable? — HUD Answers Knowledge Base, April 7, 2023. answers.hud.gov
- Circular 26-23-10: Assumption Policy (Substitution of Entitlement) — U.S. Department of Veterans Affairs, May 22, 2023. benefits.va.gov
- Upfront Mortgage Insurance Premium (UFMIP) — Appendix 1.0 — U.S. Department of Housing and Urban Development (policy reference). https://www.hud.gov/sites/dfiles/OCHCO/documents/Appendices_to_41551.pdf HUD
- Mortgagee Letter 2023-05: Annual MIP Reduction — U.S. Department of Housing and Urban Development, February 22, 2023. https://www.hud.gov/sites/dfiles/OCHCO/documents/2023-05hsgml.pdf FHA.com
- 203(k) Rehabilitation Mortgage Insurance Program (overview & limits) — U.S. Department of Housing and Urban Development. https://www.hud.gov/program_offices/housing/sfh/203k/203k–limits HUD
- Chapter 3: The VA Loan & Guaranty (Occupancy, 1–4 units) — U.S. Department of Veterans Affairs, current handbook. https://www.benefits.va.gov/WARMS/docs/admin26/handbook/ChapterLendersHanbookChapter3.pdf benefits.va.gov
- Interested Party Contributions — 6% Limit (FHA) — HUD policy excerpt (seller concessions). HUD
