FHA vs. VA loans: which is better for veterans?
Both are government-backed and designed to make homeownership more accessible — but for eligible veterans, the differences are significant. Here's how they compare on every factor that matters.
Two government-backed loans, very different outcomes
FHA loans are available to any buyer who meets the credit and income requirements — they're the go-to option for buyers with lower credit scores or limited down payment savings. VA loans are exclusively for veterans, active-duty service members, and surviving spouses, and they come with benefits that no other loan type can match.
If you're eligible for a VA loan, this comparison almost always ends the same way. But understanding exactly why — and knowing when FHA might still make sense — is worth your time. This guide walks through every key factor so you can make a fully informed decision.
Step 01
Eligibility: who qualifies
FHA loans are open to any buyer who meets the minimum credit score (580 for 3.5% down, 500 for 10% down) and income requirements. There are no service requirements. VA loans require military service — typically 90 consecutive days of active duty during wartime, 181 days during peacetime, or 6 years in the National Guard or Reserves. Surviving spouses of service members who died in the line of duty may also qualify. You'll need a Certificate of Eligibility (COE) to use your VA benefit.
Key takeaways
Your COE can be obtained through your lender, online via the VA eBenefits portal, or by mail
National Guard and Reserve members became eligible for VA loans after serving 90 days of active duty under Title 10 orders
If you're unsure whether you qualify, a VA-experienced lender can pull your service record and confirm eligibility quickly
Step 02
Down payment: the biggest practical difference
FHA requires a minimum 3.5% down payment with a 580+ credit score — on a $400,000 home, that's $14,000 out of pocket before closing costs. VA loans require zero down payment for eligible borrowers with full entitlement. This is one of the most significant financial advantages in all of mortgage lending. A $0 down payment on a $400,000 home means you keep $14,000 in your pocket — or use it to cover closing costs, build an emergency fund, or invest elsewhere.
Key takeaways
VA's $0 down benefit applies to the full purchase price up to the conforming loan limit with full entitlement
FHA down payment assistance programs can reduce the 3.5% requirement — but VA still wins on total cash needed
If you've used your VA benefit before, you may have reduced entitlement — a VA lender can calculate your remaining entitlement
Step 03
Mortgage insurance: a major monthly cost difference
FHA requires two forms of mortgage insurance: an upfront MIP of 1.75% of the loan amount (added to your loan balance) plus an annual MIP of 0.55–1.05% paid monthly. On a $400,000 loan, that's $7,000 upfront and roughly $183–$350/month ongoing — for the life of the loan if you put less than 10% down. VA loans have no monthly mortgage insurance, ever. Instead, there's a one-time VA funding fee (typically 2.15% for first-time use with no down payment) that can be financed into the loan. Veterans with a service-connected disability rating are exempt from the funding fee entirely.
Key takeaways
Over a 30-year loan, FHA mortgage insurance can cost $60,000–$100,000+ more than the VA funding fee
If you have a VA disability rating of 10% or more, you pay zero funding fee — saving thousands at closing
The VA funding fee is tax-deductible as mortgage interest in many cases — consult a tax advisor
Step 04
Credit score requirements
FHA officially accepts scores as low as 580 (3.5% down) or 500 (10% down), making it the most accessible loan for buyers with damaged or limited credit. VA loans don't have an official minimum credit score set by the VA — but individual lenders typically require 580–620. At Diversified Lending, we work with VA borrowers at 580+. The practical difference: both loans are accessible to buyers with imperfect credit, but FHA's official 500-score floor gives it a slight edge for the most challenged credit profiles.
Key takeaways
VA lenders set their own overlays — shop around if one lender declines you based on credit score
Even a 20-point score improvement before applying can meaningfully improve your rate on either loan
VA loans are more forgiving of past bankruptcies and foreclosures than conventional loans
Step 05
Loan limits and property requirements
FHA loan limits in El Paso County (Colorado Springs) are $498,257 for a single-family home in 2024. VA loans have no loan limit for borrowers with full entitlement — you can borrow above conforming limits without a jumbo loan designation, though lenders may require a down payment on amounts above the conforming limit. Both FHA and VA have property condition requirements, but VA's are generally considered more thorough — the VA appraiser will flag safety, structural, and habitability issues. Both loans require the home to be your primary residence.
Key takeaways
VA's no-loan-limit benefit is especially valuable in Colorado's higher-priced markets
VA appraisals include a Minimum Property Requirements (MPR) check — budget for potential repairs on older homes
Neither FHA nor VA can be used for investment properties or second homes
Step 06
Which loan wins for your situation
VA wins for eligible veterans in nearly every scenario: no down payment, no monthly mortgage insurance, competitive rates, and no loan limits with full entitlement. The math almost always favors VA — often by tens of thousands of dollars over the life of the loan. FHA makes sense when: you're not VA-eligible, your credit score is below 580 (below most VA lender minimums), or you're buying a property that doesn't meet VA's Minimum Property Requirements. If you're a veteran or active-duty service member, start with VA. Use FHA as a fallback only if VA doesn't work for your specific situation.
Key takeaways
Ask your lender to run a side-by-side payment comparison showing total cost over 5, 10, and 30 years
Veterans who used FHA in the past can refinance into a VA loan once they establish eligibility
The VA IRRRL (Interest Rate Reduction Refinance Loan) makes future refinancing fast and low-cost for VA borrowers
VA-eligible? Let's run the numbers.
Jerry and Lisa have helped hundreds of Colorado veterans use their VA benefit. We'll show you exactly what you qualify for and how VA compares to FHA with your actual numbers.
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