FHA vs. VA Loans in California: Which One Is Right for You?

If you’re buying a home in California and are eligible for both FHA and VA loans, choosing the right one can significantly affect your long-term finances. Both are government-backed loan programs that help make homeownership more accessible, especially for first-time buyers or those with lower credit scores.

But which is the better fit for your unique situation in the Golden State? Let’s break down the differences between FHA and VA loans in California and help you make an informed decision.

Government-Backed Loans: FHA vs. VA

FHA (Federal Housing Administration) and VA (U.S. Department of Veterans Affairs) loans are backed by government agencies—but not funded by them. California mortgage lenders offer these loans, and the government backing reduces lender risk, which allows more lenient borrower qualifications.

Both loan types offer significant advantages over conventional financing, but they serve different borrower needs.

What Is an FHA Loan?

An FHA loan is insured by the Federal Housing Administration. It’s designed to assist borrowers with limited savings or weaker credit histories. In a state like California, where median home prices are higher than the national average, FHA loans can be particularly attractive for first-time buyers trying to break into the market.

Benefits of FHA Loans in California:

• Minimum 3.5% down payment with a credit score of 580 or above
• Easier qualification for borrowers with credit scores as low as 500 (with 10% down)
• Can be used for single-family homes, condos, or certain manufactured homes
• Assumable loan (beneficial in a high-interest rate environment)

What Is a VA Loan?

VA loans are exclusive to eligible active-duty military, veterans, National Guard members, and some surviving spouses. These loans are backed by the Department of Veterans Affairs and come with unmatched benefits—especially important in California, where housing affordability is a challenge for many veterans.

Benefits of VA Loans in California:

• No down payment required
• No private mortgage insurance (PMI)
• Competitive interest rates
• Limited closing costs
• Lifetime benefit: Can be used multiple times
• Available for high-cost areas like Los Angeles, San Diego, or the Bay Area

Who Can Qualify for Each Loan?

FHA Loan Eligibility:

FHA loans are open to nearly any borrower who meets the credit and income requirements. There are no service-related eligibility restrictions.

VA Loan Eligibility:

VA loans require military service qualification. Borrowers must meet minimum service requirements and obtain a Certificate of Eligibility (COE) from the VA. Additionally, your lender may request a statement of service or DD-214 form.

If you’re a California veteran or service member, you likely qualify for this powerful loan option.

Down Payment Comparison: FHA vs. VA Loans in California

• FHA Loan: Minimum 3.5% down payment (as low as $17,500 on a $500,000 home)
• VA Loan: 0% down—ideal in high-priced areas of California where saving for a large down payment can be a major barrier

In a state with rising real estate costs, the VA loan’s no-down-payment feature is especially valuable.

Mortgage Insurance Differences

FHA Loans require both an upfront and annual Mortgage Insurance Premium (MIP):

• Upfront MIP: 1.75% of loan amount (can be rolled into the loan)
• Annual MIP: 0.15% – 0.75% of loan amount depending on terms

VA Loans do not require mortgage insurance, saving borrowers thousands over the life of the loan.

In a high-cost market like California, not paying MIP on a VA loan could mean significant monthly savings.

VA Funding Fee vs. FHA Upfront Costs

VA Loan Funding Fee (one-time):

• 2.15% for first-time use with zero down
• Reduced fee with a down payment or for exempt borrowers (e.g., disabled veterans, Purple Heart recipients)

FHA Upfront MIP:

• 1.75% of the loan amount, regardless of down payment

While both loans include upfront costs, VA borrowers may qualify for exemptions. For California veterans with service-connected disabilities, the VA loan becomes even more affordable.

Credit Score Requirements

At Equity Capital Home Loans, we require:

• 580 minimum credit score for both FHA and VA loans
• FHA borrowers with scores between 500–579 must put 10% down
• VA does not have a government-mandated minimum, but most lenders—including us—prefer 580+

This flexibility opens the door to homeownership for many Californians who have faced financial challenges.

FHA vs. VA Interest Rates in California

In general, VA loans tend to have slightly better interest rates compared to FHA or even conventional loans. However, rates are determined based on your personal credit profile, down payment, and other risk factors.

Whether you’re buying a home in Sacramento, San Jose, or Riverside, getting preapproved will help you compare real offers side-by-side.

Streamline Refinance Options

Both FHA and VA loans offer streamlined refinance programs for existing borrowers:

• FHA Streamline Refinance
• VA IRRRL (Interest Rate Reduction Refinance Loan)

These options allow California homeowners to reduce their interest rates with minimal paperwork and no home appraisal in most cases.

Which Is Better for You in California?

If you qualify for a VA loan, it’s typically the better financial option—especially in California where housing costs are steep. However, FHA loans remain an excellent path to homeownership for buyers with limited savings or lower credit scores.

Ready to Get Started?

‍Whether you’re exploring FHA or VA loans in California, the team at Equity Capital Home Loans is here to guide you every step of the way. Let us help you secure the best mortgage for your future.

FAQs: FHA vs. VA Loans in California

1. Can I qualify for both an FHA and a VA loan in California?

‍Yes, if you're a veteran or active-duty service member, you may qualify for both. But you can only use one program at a time per property.

2. Are VA loans better for California homebuyers?

‍VA loans are generally better if you're eligible, especially in high-cost California markets, thanks to the zero-down-payment option and lack of mortgage insurance.

3. Can I use a VA loan more than once in California?

‍Yes, VA loans can be used multiple times. You may even have partial entitlement remaining if you haven’t used the full amount.

4. What are the loan limits for FHA and VA loans in California?

‍Loan limits vary by county. In high-cost areas like San Francisco and Los Angeles, limits are significantly higher. Check current limits with your lender.

5. Can I refinance an FHA loan into a VA loan in California?

‍Only if you're eligible for a VA loan and meet the lender's criteria. Otherwise, FHA loans can be refinanced into conventional or other FHA loans.