VA vs FHA Loan in Arizona: Is the Funding Fee Worth It?
The question people search but rarely ask out loud
“Is the VA funding fee a rip off? Would I be better off just getting an FHA loan?”
VA vs FHA in Arizona: Is the VA Funding Fee a Bad Deal Next to FHA Mortgage Insurance?
A lot of veterans hear "funding fee" and start pricing FHA instead. Before you do, put the two loans next to each other on the same house. The one time fee and the monthly premium behave very differently, and the exemption rules change the answer for a lot of people.
VA home loan basics, from VA.gov
- Down payment
- None required when the price is not above the appraised value
- Mortgage insurance
- No PMI and no monthly mortgage insurance premium
- Funding fee, first use, under 5% down
- 2.15% (3.3% after first use)
- Funding fee exemption
- Waived for veterans receiving VA disability compensation, plus other groups VA.gov lists
- Loan limit with full entitlement
- None set by VA; the lender approves the amount
- Arizona bases we work around
- Luke AFB, Davis-Monthan AFB, Fort Huachuca, MCAS Yuma, Yuma Proving Ground
Sources: VA.gov purchase loan, funding fee and loan limits pages, checked November 4, 2026. Pillar Mortgage Group places VA loans on Arizona homes. Subject to VA eligibility and underwriting.
What you usually hear, and the honest answer
This question comes up constantly with families stationed at Luke in the West Valley, at Davis-Monthan in Tucson, at Fort Huachuca in Sierra Vista and around MCAS Yuma and Yuma Proving Ground. Someone at work said the funding fee is a scam, or a relative used FHA and was happy, and now the buyer is wondering whether the VA benefit is actually a benefit. It is a fair question, and the honest way to answer it is with both loans priced on the same house.
Every VA figure below comes from VA.gov, every FHA figure from HUD, both checked today. The rate is Freddie Mac's weekly average, used only so the math has a number in it. The house is an example. Pillar Mortgage Group places VA and FHA loans on Arizona homes, and we price your real numbers in writing.
What the VA funding fee actually is
The VA funding fee is a one time charge on a VA backed loan. VA.gov describes it as a fee that "helps to lower the cost of the loan for U.S. taxpayers." On a purchase, the fee depends on your down payment and on whether this is your first VA loan.
| Down payment | First use | After first use |
|---|---|---|
| Under 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Those rates took effect April 7, 2023, per VA.gov. The fee can be financed into the loan instead of paid in cash, which is how most buyers handle it. And a large group of buyers pays nothing at all. VA.gov lists who is exempt: veterans who receive VA compensation for a service connected disability, veterans eligible for that compensation who receive retirement or active duty pay instead, surviving spouses who receive Dependency and Indemnity Compensation, service members with a proposed or memorandum rating issued before closing, and active duty members who show evidence of a Purple Heart on or before closing.
The VA loan itself also carries no private mortgage insurance and no monthly mortgage insurance premium, and no down payment is required when the price is not above the appraised value. Keep those two facts in mind, because they are where FHA starts to fall behind.
VA or FHA on your Arizona home? We will check your entitlement and your funding fee status, then price both loans side by side so you can see the real difference in writing.
What FHA charges instead
FHA does not have a funding fee. It has mortgage insurance, in two pieces. Under HUD Mortgagee Letter 2023-05, the upfront mortgage insurance premium is 1.75% of the base loan amount, usually financed. Then there is an annual premium, paid monthly. For a 30 year loan with more than 95% loan to value on a base loan of $726,200 or less, the annual premium is 0.55%, and it stays for the mortgage term. Put 10% down or more and it drops off after 11 years; at the minimum down payment it does not.
HUD says an FHA down payment can be as low as 3.5% of the purchase price. That is a real advantage over conventional loans for a lot of buyers. Next to a VA loan with no down payment, it is a cost: on a $400,000 home, 3.5% is $14,000 you bring to closing.
Worked example: the same $400,000 home, four ways
Example home price, not market data and not a quote. The rate is the Freddie Mac survey's 30 year fixed average of 7.24% for the week of October 29, 2026, used on every column so you can compare the structure of the loans. It is a conventional benchmark, not a VA rate, an FHA rate or a Pillar Mortgage Group rate, and real VA and FHA quotes differ from it and from each other.
| $400,000 home | VA, first use | VA, fee exempt | VA, after first use | FHA, 3.5% down |
|---|---|---|---|---|
| Down payment | $0 | $0 | $0 | $14,000 |
| Upfront fee or premium | $8,600 (2.15%) | $0 | $13,200 (3.3%) | $6,755 (1.75%) |
| Loan amount, fee financed | $408,600 | $400,000 | $413,200 | $392,755 |
| Principal and interest | $2,785 | $2,726 | $2,816 | $2,677 |
| Monthly mortgage insurance | $0 | $0 | $0 | $177 |
| Total before taxes and insurance | $2,785 | $2,726 | $2,816 | $2,854 |
Look at the last row. Even on a second use with the full 3.3% fee, the VA payment comes in a little under FHA in this example, and VA needed no cash down. On first use the gap is about $69 a month. With the fee waived it is about $128 a month, plus the $14,000 you kept in the bank.
Cash matters as much as the payment. Two buyers with the same income can be in very different places if one of them has to drain savings for a down payment. VA.gov also lists fewer closing costs among the benefits of a VA purchase loan and notes that the seller may pay them. Keeping $14,000 in reserve for a water heater, a move or a deployment is worth something real.
The FHA premium in that table is about $177 a month at the start, roughly $2,100 in the first year. It is quieter than a one time fee because it is folded into the payment, which is exactly why people underestimate it. The funding fee is one number on one line, so it gets all the attention.
Run your own numbers
VA payment and funding fee calculator
At these numbers, the VA payment is $71 a month lower than FHA, before taxes and insurance.
- Funding fee (2.15%)$8,600
- VA loan amount with fee financed$408,600
- FHA loan, 3.5% down, upfront MIP financed$392,755
- FHA principal, interest and monthly MIP$2,790
- Monthly difference$71 less with VA
Illustrative only. Not a quote, an approval or a commitment to lend. Default values are placeholders, not Pillar Mortgage Group rates; enter the rate you were quoted. The same rate is used on both lines for comparison only, and real VA and FHA rates differ. Taxes, insurance and HOA dues are not included. VA funding fee: VA.gov funding fee table, purchase loans, 2.15% first use and 3.3% after first use under 5% down, 1.5% at 5% down, 1.25% at 10% down; rates effective April 7, 2023; page last updated October 5, 2026; checked November 4, 2026. Veterans who receive VA compensation for a service connected disability, and the other groups VA.gov lists, do not pay it. FHA: HUD Mortgagee Letter 2023-05, upfront MIP 1.75% of the base loan; annual MIP 0.55% for terms over 15 years above 95% LTV on base loans up to $726,200 (0.75% above that); HUD says an FHA down payment can be as low as 3.5%; checked November 4, 2026.
Want your real VA numbers? We will check your entitlement and funding fee status, then price VA and FHA side by side in writing.
What most lenders won't tell you
Ask about the exemption before you write an offer. If you have a VA disability rating, or a pending claim, it changes your numbers. VA.gov exempts service members with a proposed or memorandum rating issued before closing. VA's own lender guidance also allows a funding fee refund when a disability rating is awarded retroactively to a date before closing. If your claim is in process, tell your lender on day one, not at the closing table.
The seller can help with the fee. VA allows seller concessions of up to 4% of the home's reasonable value, and those concessions can include the funding fee. In a market where sellers are offering credits, that can take the fee off your plate entirely. Ask your agent to write it into the offer.
VA sets no minimum credit score. Lenders set their own floors. That is one reason it pays to have a broker shop the file instead of taking the first answer you get.
Full entitlement means no VA loan limit. VA.gov says that with full entitlement "you don't have a loan limit," as long as you can afford the loan and the appraisal supports the price. FHA has county loan limits. In higher priced Arizona neighborhoods, that difference alone can decide it.
FHA can still be the right call. A VA appraisal checks that the home meets VA's minimum property requirements: safe, sound and sanitary. A condo has to be in a VA approved project. Both VA and FHA are for the home you live in. If the home you love fails one of those VA checks, or you are not eligible yet, FHA may be the loan that closes. That is not a failure of the benefit, it is a matching problem.
Who this is not for
This comparison is not for you if you do not yet meet VA's service requirements (for Gulf War era veterans, VA.gov lists at least 24 continuous months, or the full period of at least 90 days you were called to active duty, among other paths), if the home will be a rental rather than where you live, or if the condo you want is not in a VA approved project. If you have strong credit and 20% down, compare a conventional loan too, because neither VA's fee nor FHA's insurance may be the cheapest path for you.
Does VA disability income count when you qualify?
Yes, and it often counts for more than people expect. VA disability compensation is stable, it is not taxed, and VA's underwriting guidance lets a lender gross up non taxable income, commonly by about 25%, because a dollar you do not pay tax on goes further than a taxed dollar. So the same benefit check can carry more of the payment than its face amount suggests. On top of that, the same compensation is what waives the funding fee, so it helps on both sides of the file.
VA also looks at more than one ratio. The debt to income benchmark in VA's credit underwriting chapter is 41%, and it is a benchmark, not a hard wall. VA leans heavily on residual income: what is left each month after taxes, the house payment and your other debts, compared with a minimum VA sets by region and family size. A file above 41% can still work when residual income is comfortably above that minimum. That is why "is my disability income enough" rarely has a one line answer. It depends on the payment, your other debts and your household size, and it is a question we answer with your real numbers.
Timing it around a PCS move
Military buyers often shop on a clock: orders arrive, a report date is set and the family needs a place to live. The VA loan handles that better than most people expect, but a few steps take real time. The Certificate of Eligibility is usually quick when your lender requests it, while a VA appraisal has to be ordered through VA's system and scheduled, so build that into your offer timeline. If you are buying before you arrive, tell us your report date and whether a spouse will sign anything while you are in transit, and we plan the closing around it.
If you already own a home with a VA loan somewhere else and you are keeping it, ask about your remaining entitlement. VA.gov explains that without full entitlement, your remaining entitlement is based on the county loan limit, which can change how much you can borrow with no money down on the Arizona home. It is a five minute check on the COE, and it is much better to find out before you write an offer than after.
Buying near an Arizona base
Most of our military buyers are within a commute of one of five installations: Luke Air Force Base in the West Valley, Davis-Monthan Air Force Base in Tucson, Fort Huachuca near Sierra Vista, and Marine Corps Air Station Yuma and Yuma Proving Ground in Yuma County. Veterans buy all over the state too, from Prescott to Mesa. You can browse homes on Arizona Luxury Property Search while we line up the loan. If FHA ends up being your better fit, our Arizona FHA loan page covers the details.
For more, read our VA loans in Arizona 2026 guide, our comparison of FHA vs conventional, and how the funding fee works on a VA refinance.
What to do this week
Five steps that take the guesswork out of VA vs FHA.
- Get your Certificate of Eligibility. Request it on VA.gov, or let your lender pull it for you.
- Check your exemption status. If you receive VA disability compensation or a claim is pending, have the paperwork ready.
- Pick your down payment on purpose. 0%, 5% and 10% down each change the funding fee. Run all three above.
- Ask for VA and FHA priced side by side on the same day and the same price, so you compare real quotes.
- Talk seller concessions with your agent before you write the offer, not after.
Frequently asked questions
Is a VA loan cheaper than an FHA loan?
For most eligible buyers, yes. In our $400,000 example at the same reference rate, a first use VA loan with the 2.15% fee financed came in about $69 a month below FHA, with no down payment. Real quotes differ, so price both on your home.
How much is the VA funding fee in 2026?
On a purchase, VA.gov lists 2.15% on first use and 3.3% after first use with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. These rates took effect April 7, 2023.
Who does not have to pay the VA funding fee?
VA.gov exempts veterans receiving VA compensation for a service connected disability, those eligible for it who receive retirement or active duty pay instead, surviving spouses receiving DIC, service members with a proposed or memorandum rating issued before closing, and active duty Purple Heart recipients.
Does FHA mortgage insurance ever go away?
Under HUD Mortgagee Letter 2023-05, with less than 10% down on a loan over 15 years the annual premium lasts for the mortgage term. With 10% or more down it ends after 11 years.
Can the seller pay my VA funding fee?
Yes, within limits. VA allows seller concessions up to 4% of the home's reasonable value, and the funding fee can be part of those concessions. Write it into the offer with your agent.
Do you do VA loans near Luke AFB and Davis-Monthan?
Yes. Pillar Mortgage Group places VA loans on Arizona homes, including around Luke AFB, Davis-Monthan AFB, Fort Huachuca, MCAS Yuma and Yuma Proving Ground, and for veterans anywhere in Arizona.
Sources
All sources checked November 5, 2026. Data changes, so confirm before you rely on it.
- VA.gov, VA funding fee and loan closing costs. Purchase funding fee table (2.15%, 3.3%, 1.5%, 1.25%), rates effective April 7, 2023, exemptions; page last updated October 5, 2026
- VA.gov, VA purchase loan. No down payment when the price is not above appraised value; no PMI or MIP; page last updated January 7, 2026
- VA.gov, VA home loan limits. No loan limit with full entitlement; page last updated August 12, 2025
- VA.gov, eligibility for VA home loan programs. Gulf War era service requirements and Certificate of Eligibility; page last updated September 22, 2026
- VA Lender Handbook, VA Pamphlet 26-7. Funding fee financing and refund on retroactive ratings, seller concessions capped at 4% of reasonable value, minimum property requirements, VA approved condo projects, no VA minimum credit score; Chapter 4 credit underwriting: 41% DTI benchmark, residual income by region and family size, non taxable income gross up
- HUD Mortgagee Letter 2023-05. FHA upfront MIP 1.75%; annual MIP 0.55% above 95% LTV for base loans up to $726,200 and terms over 15 years, for the mortgage term
- HUD, Let FHA loans help you. FHA down payment can be as low as 3.5%
- Freddie Mac Primary Mortgage Market Survey. 30 year fixed average 7.24% for the week of October 29, 2026 (reference only)
Why Pillar Mortgage Group
A brokerage that knows military files. That difference is the whole point.
We are a brokerage. We price your VA file across the wholesale lenders we work with and show you VA and FHA side by side when it is close.
Entitlement, funding fee exemptions, residual income, PCS timing. We check the details that move your payment before you write an offer.
Luke, Davis-Monthan, Fort Huachuca, MCAS Yuma and Yuma Proving Ground, plus veterans anywhere in Arizona.
If the VA loan is not your best option, we say so. If waiting a few months helps, we say that too.
Talk to a real broker
Get your VA numbers,
not a general answer.
Tell us what you are working on. We will shop the lenders we work with and send you real numbers for your situation, in writing. No application, no credit pull, no obligation.
You are in.
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Book a Free CallAbout Pillar Mortgage Group
Pillar Mortgage Group, LLC is a licensed mortgage brokerage based in Scottsdale, AZ. Company NMLS #2700076 | Arizona Mortgage Broker License MB-2009671 | Equal Housing Lender.
9089 E Bahia Dr 101A, Scottsdale, AZ 85260
This content is for informational and educational purposes only and does not constitute financial, legal, or tax advice. Mortgage rates, loan programs, and market conditions are subject to change without notice. Not a commitment to lend. All loans subject to credit approval. Third-party market data sourced from publicly available information. Pillar Mortgage Group conducts business in accordance with the Fair Housing Act and the Equal Credit Opportunity Act.
