VA Loans vs. Conventional Loans: What’s the Difference?

Should You Choose a VA or Conventional Loan?

When it comes to buying a home, the type of loan you choose can have a lasting impact on your finances. VA loans and conventional loans both have advantages, but they serve different borrowers and situations. Understanding the differences can help you make a choice that aligns with your long-term goals, budget, and homeownership plans. Let’s walk through what sets these loans apart and how to decide which one is right for you.

VA Loan vs. Conventional Loan Overview

VA loans and conventional loans differ in several ways, including eligibility, upfront costs, and flexibility over time. VA loans backed by the Department of Veterans Affairs are designed specifically for service members, veterans, and surviving spouses. They often let you purchase a home without a down payment and without monthly private mortgage insurance, which can lead to significant savings. Conventional loans, by comparison, are open to a wider range of borrowers and provide more variety in loan terms, credit requirements, and the types of properties you can buy. Understanding these differences is the first step in finding a loan that fits your financial situation and goals.

Check out our comparison table:

VA Loan vs. Conventional Loan Requirements

One of the biggest differences between these loans is who can qualify. VA loans are reserved for eligible service members, Veterans, and surviving spouses who meet the Department of Veterans Affairs’ service standards. You’ll also need a Certificate of Eligibility to confirm your VA home loan entitlement. Lenders will review your credit and debt-to-income ratio to make sure you can comfortably manage a mortgage, but there is no required minimum credit score set by the VA. Another standout feature of VA loans is that they usually don’t require a down payment, which can make getting into a home much more attainable.

Conventional loans are available to a broader range of borrowers but usually come with stricter financial requirements. A higher credit score is often necessary, and lenders carefully evaluate your debt-to-income ratio. Down payments can start as low as 3%, though this depends on your credit profile and the type of property. If your down payment is under 20%, private mortgage insurance may be required, adding to your monthly costs. Knowing these requirements helps you understand which loan type matches your current financial readiness.

What Are the Benefits of Conventional Loans vs. VA Loans?

Both VA and conventional loans have features designed to support different financial situations. Here’s a closer look at what each brings to the table:

In many cases, the right loan depends on your eligibility and how you plan to structure your long-term finances. Someone who qualifies for a VA loan and wants to minimize upfront costs may find that its benefits provide a clear path to homeownership, especially with no required down payment or monthly PMI. On the other hand, a borrower with strong credit, a larger down payment, or an interest in a second home may benefit more from the flexibility of a conventional loan.

VA and Conventional Loan Costs

Both VA loans and conventional loans come with costs that borrowers should understand when planning for homeownership. Knowing these cost structures, along with the steps to get started, can help you make informed decisions, including how to apply for a VA home loan.

• VA loan funding fee: VA loans include an upfront, one-time funding fee, which is due at closing or can be financed into your mortgage amount. The VA funding fee is a type of mortgage insurance. The fee helps protect the VA loan program if borrowers default. Some disabled Veterans and surviving spouses are exempt from paying this fee.
• Conventional loan mortgage insurance: Conventional loans don’t have any upfront costs, like the funding fee. However, conventional loans often require monthly payments for private mortgage insurance (PMI) if your down payment is below 20%. The total cost of these PMI payments over the life of your loan can be higher than the cost of your funding fee.

VA Funding Fee Costs vs. Conventional Loan Mortgage Insurance Costs

Let’s look at examples of the cost of the VA funding fee versus the cost of private mortgage insurance. Assume that you’re buying a house with a 10% down payment and a $300,000 mortgage.

In this example, you’ll pay a funding fee of 1.25% of the loan amount, or $3,750, if you buy the home with a VA loan.

Freddie Mac estimates that you might pay between $30 and $70 per month in PMI for each $100,000 you borrow with a conventional loan. In this example, that means you might pay between $90 and $210 per month, or between $1,080 and $2,520 per year, for private mortgage insurance. You’ll see here that within four years, the cost of PMI, even on the low end of estimates, will surpass the VA funding fee in this table:

Now, assume you’re buying a house with a 20% down payment and a $300,000 mortgage. Because you’re making a 20% down payment, you won’t have to pay for private mortgage insurance. In this example, choosing a conventional loan to avoid paying the funding fee may make more sense.

You’ll also want to consider the costs of the funding fee versus private mortgage insurance when you refinance your home. However, when you refinance your home using a VA streamline refinance, your funding fee is only 0.5% of the loan amount, or $1,500 when you refinance a $300,000 mortgage.

Final Thoughts: How VA and Conventional Loans Compare

At the end of the day, the right loan depends on your eligibility, financial profile, and long-term goals. VA loans offer service members, Veterans, and surviving spouses the chance to buy a home with minimal upfront costs, no monthly PMI, competitive rates, and protections tied to their service. Conventional loans provide flexibility for a wider range of borrowers, with varied down payment options, loan terms, and property types, though they may require PMI and stronger credit.

If a VA loan fits your situation, learning more about its benefits and requirements can guide you toward the next step: applying and unlocking the advantages it offers.