If you have earned a VA (Department of Veterans Affairs) home loan benefit, you may still wonder whether it beats a regular mortgage. The VA loan vs conventional loan question comes up on almost every military home search, and the honest answer is that it depends on your down payment, your credit, and your goals. This guide puts the two loans side by side in plain language so you can walk into a lender meeting knowing which questions to ask.
The Basic Difference
A VA loan is a mortgage backed by the Department of Veterans Affairs and offered to eligible service members, veterans, and some surviving spouses. The VA does not lend the money; it guarantees part of the loan so a private lender can offer better terms.
A conventional loan is a mortgage that is not backed by any government agency. Most conventional loans follow rules set by Fannie Mae and Freddie Mac, the two companies that buy loans from lenders. Anyone can apply for one, military or not.
The VA loan is a benefit you earned through service. If you qualify, it usually offers the lowest cost of entry. But it is not always the winner, so it helps to compare the details. If you are new to the benefit, start with our overview of the benefits of a VA loan.
Down Payment and Mortgage Insurance
This is the biggest gap between the two loans, and where most military buyers save.
A VA loan lets eligible buyers purchase with no down payment and charges no monthly mortgage insurance. A conventional loan can go as low as 3 percent down for some buyers, but if you put down less than 20 percent, you pay private mortgage insurance, or PMI. According to the Consumer Financial Protection Bureau, your servicer must automatically cancel PMI once your balance reaches 78 percent of the home's original value, and you can ask to cancel it at 20 percent equity. Until then, PMI adds to your payment every month.
| Feature | VA loan | Conventional loan |
|---|---|---|
| Minimum down payment | 0% | Usually 3% |
| Monthly mortgage insurance | None | PMI if less than 20% down |
| One-time fee | VA funding fee | None |
| Backed by | Department of Veterans Affairs | Fannie Mae / Freddie Mac |
Estimated cash to close on a $300,000 home. The VA loan removes the down payment, the largest upfront cost. Figures are illustrative and exclude other closing costs.
To see how the no-down-payment benefit works in practice, read our guide to how a $0 down VA loan works.
The VA Funding Fee vs. PMI
The VA loan trades monthly mortgage insurance for a one-time charge called the funding fee. This fee keeps the program running for future service members. Per VA.gov, the purchase funding fee is 2.15 percent of the loan for first-time users who put nothing down, and it drops if you make a down payment.
| Down payment | First use | After first use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Source: VA.gov funding fee rates, effective April 7, 2023.
Two points matter here. First, you can roll the funding fee into your loan instead of paying cash. Second, many buyers pay no funding fee at all: VA.gov exempts anyone receiving VA compensation for a service-connected disability, among others. Learn more in our complete guide to the VA funding fee. PMI, by contrast, is never refunded once paid and continues until you reach the equity marks above.
Credit Score and Qualifying
The VA does not set a minimum credit score. As VA.gov notes, individual lenders may set their own, so it pays to compare more than one. Conventional loans generally look for a score around 620 or higher, and your rate improves as your score climbs.
VA loans also tend to be more flexible on debt-to-income ratio and use a "residual income" test that looks at the cash left over after your bills. For a deeper look, see our guide to VA loan credit score requirements.
