VA Loans vs. Conventional Loans: A Clear, Practical Comparison
VA loans serve eligible veterans with no down payment and no monthly mortgage insurance, though a one-time funding fee usually applies. Conventional loans are open to all borrowers and typically require a down payment; private mortgage insurance applies under 20% down. The better choice depends on eligibility, total cost, property plans, and how long you’ll keep the loan.
Quick Facts
- No down payment vs PMI: VA often enables zero down without monthly PMI; conventional can avoid PMI at 20% down.
- Use of property: VA is for primary residences; conventional can finance second homes and investment properties.
- Total-cost lens: The one-time VA funding fee and conventional PMI behave differently—compare lifetime cost, not rate alone.
Mini FAQ
Is VA always cheaper than conventional?
Not always. VA often wins with small down payments; conventional can win with 20% down and no PMI. The right answer depends on loan size, fees, points, PMI, and how long you’ll keep the mortgage.
Does VA require perfect credit?
No. Lenders set overlays, but VA underwriting emphasizes capacity and residual income. Conventional pricing may demand higher scores for best tiers, while VA can remain competitive at mid-score levels.
Can I use VA for a second home?
No. VA purchases are for primary residences; conventional loans can finance second homes and investment properties when you meet down payment and underwriting standards.
- VA: no down payment, no monthly PMI, one-time funding fee; primary residences only.
- Conventional: broader eligibility, second homes and investments, PMI under twenty percent down.
- Compare APR, cash-to-close, and lifetime cost, not headline rate alone or teaser ads.
- Funding fee versus PMI changes economics as down payment and horizon shift meaningfully.
- Property plans matter; future rentals often favor conventional structure and flexibility.
- Standardize Loan Estimates from three lenders to find the most economical structure confidently.
Compare VA Loans vs Other Types of Loans
Which loan is better for most borrowers?
Neither loan is universally best; fit depends on eligibility and total cost. VA benefits can be outstanding for eligible borrowers with limited down payment, while conventional shines with larger down payments or broader property choices (VA home loans overview; CFPB rate context tools). Compare lifetime cost, not just rate.
- VA strengths: No monthly PMI at low or zero down can reduce payment meaningfully, and VA’s guaranty often supports competitive pricing when credit is average, improving affordability without large cash at closing.
- Conventional strengths: With 20% down you avoid PMI entirely, and you can purchase second homes or investment properties—flexibility that VA does not offer for occupancy-related reasons and ongoing program intent safeguards.
- Total-cost view: The one-time VA funding fee trades against conventional PMI. Funding fee is upfront; PMI is monthly and cancelable when equity builds—run time-horizon math before deciding decisively.
- Check eligibility first. If you qualify for VA, price both structures; if not, optimize conventional terms with strong documentation and standardized quotes.
- Model holding period. Short horizons may prefer lower fees; longer horizons may justify points or structures with lower lifetime interest.
- Decide by total cost. Compare APR and cash-to-close under identical terms, not headline rates alone, to reveal the real winner financially.
“Better” is situational—your down payment, horizon, and property plan determine which structure delivers the best economic outcome (CFPB tools).
What are the core differences between VA and conventional loans?
VA trades no monthly PMI and possible zero down for a one-time funding fee. Conventional requires a down payment and usually PMI under 20% down, but offers broader property flexibility (CFPB: PMI explainer; VA funding fee).
- Funding fee vs PMI: VA’s one-time fee replaces monthly PMI; for conventional, PMI protects lenders when equity is thin, then can be canceled as equity rises to policy thresholds later.
- Property flexibility: A VA loan is for primary residences. Conventional can finance second homes and non-owner-occupied properties when borrowers meet down payment and underwriting requirements applied by lenders.
- Pricing mechanics: Both price off market rates and risk-based adjustments. VA’s guaranty can cushion pricing at modest scores; conventional pricing rewards higher scores and larger down payments significantly.
| Feature | VA Loan | Conventional Loan |
|---|---|---|
| Eligibility | Eligible veterans, active duty, certain surviving spouses | Available to all qualified borrowers |
| Down payment | Often 0% | Typically ≥3%; 20% avoids PMI |
| Mortgage insurance | No monthly PMI; one-time funding fee | PMI under 20% down; cancellable as equity builds |
| Property use | Primary residence | Primary, second home, or investment |
- List must-haves. Decide whether second-home or investment flexibility matters; if yes, conventional may be the only viable path.
- Weigh fee structure. Compare a one-time funding fee versus monthly PMI that you can cancel later to see long-run cost differences.
- Stress-test payment. Confirm affordability if PMI lasts longer than expected or if you finance the VA funding fee and rates drift higher before closing.
The headline differences are simple; the cost interaction with your down payment and timeline determines which path actually wins (VA funding fee; CFPB on PMI).
Who qualifies for each loan type?
VA requires eligible service; conventional is open to any qualified borrower. VA eligibility is established via the Certificate of Eligibility; conventional relies on income, credit, assets, and collateral standards (VA eligibility; CFPB: rate factors).
- VA eligibility: Service history and character of service determine qualification. Lenders use your COE along with underwriting to size approval and confirm program access before disclosures and appraisals proceed.
- Conventional readiness: Higher credit tiers and stable, documentable income generally improve pricing; larger down payments can offset risk and eliminate PMI, strengthening approval prospects in competitive markets.
- Shared basics: Both paths verify income, debts, and assets, and require acceptable property collateral; stronger documentation usually accelerates timelines and reduces conditions.
- Secure your COE. If VA-eligible, obtain the Certificate of Eligibility early so lenders can quote accurately and clear overlays quickly.
- Polish credit. Reduce utilization, avoid new accounts, and correct report errors to improve tiers that influence pricing, especially on conventional offers.
- Organize documents. Prepare pay stubs, W-2s/1099s, tax returns, bank statements, and reserves evidence to accelerate underwriting for either loan type.
Eligibility opens the door; strong documentation and credit hygiene determine how favorable the quotes are on either path (VA eligibility).
How do total costs compare—funding fee versus PMI and closing costs?
VA swaps monthly PMI for a one-time funding fee; conventional uses PMI until 20% equity. The better deal depends on down payment, time in the home, and rate-plus-fee structure (VA funding fee; CFPB: PMI basics).
- Short horizon: If you’ll sell soon, heavy upfront fees rarely pay back. Conventional with modest PMI might cost less than financing a funding fee you won’t amortize with long occupancy.
- Long horizon: For longer holds, VA’s lack of monthly PMI can outperform—especially at low down payment—despite the one-time fee, particularly if conventional quotes require PMI for many years.
- Cash-to-close: Compare true cash required for both paths, including taxes, insurance, prepaid interest, and lender fees; a slightly higher rate with lower fees can beat a lower rate with heavy points.
- Compute break-even. Divide added fees by monthly savings to determine months to recoup; choose the structure that fits your realistic holding period.
- Compare APRs. APR and cash-to-close reveal total cost differences better than the note rate alone under identical terms.
- Stress-test equity. If home appreciation or principal paydown is slower, PMI could last longer; ensure the scenario still pencils out.
Total-cost math—not program labels—should dictate the choice, especially when down payment and horizon differ from rule-of-thumb assumptions (CFPB PMI).
How do occupancy and property rules differ between VA and conventional?
VA is for primary residences; conventional can finance second homes and investments. VA requires good-faith primary occupancy within a reasonable time after closing, consistent with program policy (VA occupancy policy).
- VA requirement: Borrowers certify intent to occupy the property as their principal residence; certain spouse or dependent occupancy scenarios may satisfy this when the veteran cannot immediately move in.
- Conventional flexibility: Lenders may allow financing for second homes and non-owner-occupied properties when down payment, reserves, and risk criteria are met under investor guidelines and prudent underwriting standards.
- Future plans: If you intend to convert to rental soon, conventional structure often aligns better with future landlord use and program compliance considerations.
- Clarify use. Decide if you need second-home or investment flexibility; if so, conventional likely fits better than VA’s primary-residence framework.
- Plan documentation. For VA, prepare occupancy certifications; for conventional, prepare stronger reserves and risk buffers for non-owner-occupied scenarios.
- Avoid misclassification. Do not attempt to use VA for non-primary purposes; certification must reflect your genuine, timely intent to occupy.
Matching the loan to actual property use prevents compliance issues and protects future borrowing options (VA occupancy).
How do appraisals and property condition standards compare?
VA appraisals verify Minimum Property Requirements; conventional relies on standard collateral guidelines. VA checks safe, sound, and sanitary conditions, including roof life and essential systems; conventional focuses on market value and lender/investor standards (VA MPRs).
- Safety baseline: VA’s MPRs emphasize habitability—sanitary water and sewage, functional mechanicals, adequate roof life, and absence of conditions that threaten use or structural integrity at time of purchase.
- Inspection practice: Regardless of program, a professional inspection protects buyers from hidden defects that an appraisal may not list, clarifying repair priorities before deadlines and funding commitments occur.
- Negotiation impact: VA-required repairs must be cleared to close; conventional conditions vary by investor and collateral policy, but serious safety issues typically require resolution for any program to proceed.
- Order inspections early. Align inspection before appraisal when possible; fix obvious issues to avoid repeat visits or extended conditions.
- Document repairs. Provide invoices and photos to support any reinspection and keep underwriting timelines intact.
- Budget reserves. Even with clean reports, keep a cushion for maintenance and escrow changes after closing.
Understanding MPRs versus typical collateral standards helps you plan repair timelines and avoid delays that jeopardize rate locks and contract milestones (VA MPRs reference).
How should you shop and compare offers effectively?
Standardize quotes and compare APR and cash-to-close, not rate alone. Use identical terms across at least three lenders, then decide based on total cost and fit for your timeline and property plans (CFPB Loan Estimate).
- Apples-to-apples: Keep loan amount, term, lock length, and points the same across lenders. Moving any variable hides true pricing differences in shifting assumptions and credits.
- APR + cash metrics: APR captures fees and rate; cash-to-close reveals immediate outlay. Together they expose rate-with-fees trades that marketing obscures.
- Float-down & extensions: Ask about float-downs, re-disclosures, and extension costs so you understand tradeoffs if markets move while you finalize underwriting steps.
- Collect three estimates. Request same-day Loan Estimates under identical parameters to reduce market-timing noise and clarify true cost.
- Run scenarios. Compare zero-point, one-point, and two-point options; choose the best total-cost path for your realistic holding period.
- Keep files clean. Complete documentation prevents lock extensions and preserves savings when pricing improvements appear.
Process discipline beats rate chasing. The best offer is the one that fits your horizon and total-cost goals—not just the lowest headline rate (CFPB guide).
How do you make the final choice confidently?
Decide by total cost, property plans, and time horizon. If you’re eligible, price both programs using standardized quotes. Choose the structure that meets your payment and risk targets under conservative assumptions (CFPB rate tools).
- Payment resilience: Ensure your budget holds under slightly higher rates or longer-than-expected PMI durations so surprises don’t derail the plan.
- Property intention: If you expect to convert to rental soon, conventional flexibility often aligns better; if you’ll remain owner-occupant, VA may win at lower down payments.
- Exit optionality: Plan to refinance opportunistically only when break-even math supports it, not on hope that markets will change at the perfect moment.
- Write triggers. Define the exact payment or APR that makes you lock; act when met to avoid decision fatigue and missed windows.
- Check contingencies. Make sure contract and lock timelines align; build modest buffers for re-inspection or underwriting clarifications.
- Confirm disclosures. Reconcile the final Closing Disclosure with your chosen estimate so fees and credits match expectations precisely.
Confidence comes from math, documentation, and alignment with real-world plans—not from program labels or one-line rate quotes (CFPB resources).
The Bottom Line
Pick the loan that wins on your numbers, property plans, and horizon. VA’s no-PMI structure can excel at low down payments, while conventional delivers flexibility—and no PMI at 20% down. Decide with standardized quotes, APR and cash-to-close, and realistic scenario math for rate changes and equity timelines. Confirm VA eligibility, occupancy requirements, and funding-fee impact; for conventional, weigh PMI cancellation timing against upfront costs and points. Align contingencies and documentation to lock efficiently and avoid extensions. When both paths pencil, choose the one that preserves flexibility and meets your long-term goals under conservative assumptions.
Is a VA loan always cheaper than a conventional loan?
Not automatically. VA often wins at low down payments due to no monthly PMI, but conventional can win with 20% down. Compare APR, cash-to-close, and time-in-home to reveal the true winner.
Does a VA loan require mortgage insurance?
VA loans have no monthly PMI. Instead, most borrowers pay a one-time funding fee, which can be financed. Compare that fee against conventional PMI duration when modeling total cost for your timeline.
Can I use a VA loan for a second home or investment property?
No. VA purchases are for primary residences. If you need second-home or investment flexibility, price conventional options and confirm down payment, reserve, and underwriting requirements beforehand.
When does conventional PMI go away?
PMI generally drops when you reach the required equity through paydown and appreciation, subject to investor rules. Model slower equity growth to avoid over-optimism about how quickly PMI cancels.
Are VA interest rates always lower than conventional?
Often, but not guaranteed. Both respond to market yields and risk factors. VA’s guaranty can improve pricing at moderate scores; conventional may match or beat VA at high scores and large down payments.
Can I roll closing costs into the loan with VA or conventional?
Sometimes. You may finance certain costs or receive credits, but lender and investor rules apply. Compare cash-to-close and monthly impact and confirm how credits or points change total cost over time.
Which program is faster to close?
Timelines depend on your file, appraisal, and lender capacity. Well-organized documents and early inspections often matter more than program label, keeping conditions small and approvals predictable.
Is it worth buying points in either program?
Only when break-even months fit your horizon. Compare zero-point, one-point, and two-point structures and select the option with the best total-cost outcome for your likely time in the home.
How do I compare quotes fairly?
Request same-day Loan Estimates with identical amount, term, lock length, and points. Decide using APR and cash-to-close under matching terms instead of headline rates or unstandardized worksheets.
What if I qualify for both—how do I decide?
Run scenario math for payment, cash-to-close, and lifetime interest. Consider property plans, PMI cancellation timing, funding-fee impact, and future flexibility. Choose the structure that still works under conservative assumptions.
