This post puts the two loans side by side for a purchase. It won't tell you which loan you'd be approved for, because that depends on your whole file. It will show you what to compare and what to ask a lender for, so the choice comes from your own numbers.
Who can use each loan
The two loans are open to different groups. Federal consumer guidance on the kinds of home loans available lists FHA loans as a low down payment option and VA loans as a program for veterans, servicemembers, and surviving spouses.
A VA purchase loan has three basic conditions on the VA's purchase loan page: you qualify for a Certificate of Eligibility (COE), you meet the VA's and your lender's standards, and you will live in the home you buy. So the first question is simple. If you can get a COE, you can compare both loans. If you can't, FHA is the one of these two that is open to you, and the comparison is FHA against other loan types instead. We cover that one in FHA vs conventional.
The rest of this post assumes you can get a COE and are deciding between the two.
Down payment
Down payment is the first difference you will see at closing.
A VA purchase loan can have no down payment, as long as the sales price isn't higher than the home's appraised value. If the price comes in above the appraisal, the gap is something you would need to cover or negotiate.
An FHA loan needs a down payment, though a low one. You will bring some cash for the down payment, and the amount depends on the price and on what the lender requires for your file.
If you can't or don't want to put cash down, that point may settle it. If you do plan to put money down, keep reading, because the other differences still matter. We wrote about how a down payment interacts with VA loan limits in VA loan limit and down payment checks.
Mortgage insurance
Mortgage insurance protects the lender if a loan goes unpaid. The two loans treat it in different ways.
The CFPB's guide to mortgage insurance says FHA mortgage insurance is required on all FHA loans. It has two parts: an upfront cost paid as part of closing costs, and a monthly cost included in your monthly payment. The same guide says that on a VA-backed loan, the VA guarantee replaces mortgage insurance and there is no monthly mortgage insurance premium.
That monthly line is easy to miss when you compare two quotes. Two loans with similar principal and interest can have different total monthly payments once the FHA monthly premium is added. When you read quotes, compare the full monthly payment as well as principal and interest. If you want more detail on the FHA side, see FHA upfront mortgage insurance checks.
Upfront fees
Both loans have a one-time charge at closing, and both let you roll it into the loan.
On the VA side it is called the funding fee. The VA describes it on its funding fee and closing costs page as a one-time payment that helps lower the cost of the program for taxpayers, since VA loans don't require down payments or monthly mortgage insurance. The fee depends on the type of loan and the loan amount, and on a purchase it can also depend on whether this is your first VA loan and on your down payment. You can pay it at closing or include it in the loan. The VA also lists situations in which the fee doesn't apply, and your COE and lender can tell you whether one of them fits you.
On the FHA side, the upfront charge is the upfront mortgage insurance premium described above. It can also be rolled into the mortgage.
Rolling either fee into the loan keeps cash in your pocket at closing. It also makes the loan larger, which raises what you pay over time. Ask your lender to show the fee both ways so you can see the trade.
Closing costs and seller help
Closing costs come with both loans, and a lender's quote will list them. A few VA rules shape how they are paid on a purchase.
The VA lets you and the seller negotiate who pays many closing costs, and it lets sellers or builders give credits toward some or all of the buyer's closing costs. It does cap seller concessions, such as a seller paying your funding fee, at a share of the home's reasonable value. On a VA purchase loan, the funding fee is the only charge you can finance into the loan amount. Everything else is paid when the loan closes, either by you or through seller credits. Our post on VA earnest money and cash to close walks through the cash you still need.
For an FHA purchase, ask the lender to show which closing costs the seller is paying and what cash you need at closing in addition to the down payment.
The property and the offer
Both loans come with an appraisal, and the house itself can change which loan is easier. A VA loan can be used for a single-family home of up to four units, and a condo has to be in a VA-approved project. If you are looking at condos, check the building's status early with your agent and lender.
Some sellers hesitate over VA offers. We covered the reasons, and how buyers answer them, in why sellers push back on VA offers.
How to compare the two for your purchase
Here is a short order of work:
- Request your COE first, so you know the VA option is open.
- Ask one lender for a VA quote and an FHA quote on the same price and the same closing date.
- Compare the full monthly payment on each, including the FHA monthly premium.
- Compare cash to close on each: down payment, closing costs, and any upfront fee you choose to pay in cash.
- Ask how each upfront fee changes if you finance it instead.
FAQ
Is a VA loan always better than an FHA loan?
Not always. For a buyer who can get a COE, having no down payment and no monthly mortgage insurance can make the VA loan the stronger fit. But the funding fee, the property type, and the seller's terms can change the math, so compare written quotes for both.
Can I switch from FHA to VA after I apply?
You can ask a lender to quote both before you commit. Once you are under contract, switching loan types can mean new paperwork and new timelines, so it is easier to decide before you make the offer.
How do I compare the quotes fairly?
For most mortgages, the lender must deliver or mail a Loan Estimate within three business days after receiving the six pieces of information that make up an application. Lay the VA and FHA Loan Estimates next to each other and compare the same lines. The Loan Estimate guide explains each page.
One thing to do
Request your COE, then ask for a VA quote and an FHA quote on the same home. You can start your VA purchase request here.
Sources: VA, "Purchase loan"; VA, "VA funding fee and loan closing costs"; CFPB, "What is mortgage insurance and how does it work?"; CFPB, "Understand the different kinds of loans available"; CFPB, "What is a Loan Estimate?".
Jeff Shin, Mortgage Loan Originator, NMLS #1041652. Chicago. Equal Housing Lender. Not a commitment to lend.