VA Loans Vs. FHA Loans – Understanding The Differences & Similarities

If you want a mortgage to build or purchase a property, you have to determine the best type of mortgage for you. Lenders will offer you different types of mortgages, including VA (Department of Veteran Affairs) and FHA (Federal Housing Association) loans. 

Not everyone qualifies for a conventional mortgage hence the option of other types of mortgages, including government-insured loans. If you choose FHA or VA loans, it would be best to understand the differences and similarities of both loans.


FHA and VA loans are government-backed loans. Government backing does not mean that the government lends money; banks and other mortgage lenders provide the money. However, the government insures the loans and ensures the lender receives payment. 

Therefore, FHA and VA loans are attractive because the government insurance reduces the risk for the lender, allowing them to offer more attractive terms, including better interest rates and less stringent borrowing requirements. 

Government-backed loans like FHA and VA loans are ideal for first-time borrowers, people with poor credit, and those who cannot get conventional loans for various reasons. Though both are government-backed loans, there is a difference in their definitions. 

FHA loans are insured by the Federal Housing Administration, a part of the U.S. Department of Housing and Urban Development. Therefore, if you default on an FHA loan, the FHA will pay your remaining balance to your lender. FHA loans help people who cannot afford conventional mortgages. On the other hand, VA loans are insured by the Department of Veteran Affairs. They are benefits available to people who previously served our country. FHA loans allow for down payments, whereas VA loans do not require any down payment. As you can see above, there are similarities and differences in the definition of both loans.

Fees and Closing Costs

VA loans include a funding fee that helps to pay for the loan program. All VA loan borrowers must pay the funding fee unless those who qualify for an exemption. Exemptions include Purple Heart recipients, veterans receiving compensation for a service-related disability, and surviving spouses. 

Therefore, you should always consider the fees and closing costs when getting a VA loan. The loanDepot VA loan calculator will help with that. You can pay the funding fee upfront or add it to the loan as a closing cost.

Applicant Eligibility 

Anyone from the public can apply for an FHA loan, so everyone who cannot afford a conventional mortgage is eligible to apply. On the other hand, VA loans are only available to military members, including duty service members, veterans, National Guard & Reserve members, and spouses of military personnel. 

You should note that even though you may be eligible for a VA or FHA loan, you still have to meet credit and financial requirements to get the loan. You will also need to submit a statement of service to be eligible for a VA loan.

Mortgage Insurance

A significant difference between FHA and VA loans is mortgage insurance. FHA loans require mortgage insurance, while VA loans do not. FHA mortgage insurance is also called mortgage insurance premium (MIP). MIP can either be paid upfront or annually. Upfront MIP is equal to 1.75% of your loan amount and can either be paid at closing or added to the cost of the loan.

Annual MIP is usually between 0.45% and 1.05% of the loan amount, depending on the loan duration, the amount borrowed, and the amount of your down payment. The annual premium will be split up and included as part of your monthly mortgage payment.

There are many differences and similarities between VA and FHA loans starting with the definition. Applicant eligibility, mortgage insurance, and fees & closing costs are a fraction of the differences. To get a VA and FHA loan, learn as much about their differences and similarities.