If you're eligible for a VA loan, the choice between VA and conventional is one of the most impactful financial decisions in the mortgage process. Here's the honest comparison.
VA vs. conventional at a glance
| Factor | VA Loan | Conventional Loan |
|---|---|---|
| Down payment | 0% (full entitlement) | 3–20% |
| Mortgage insurance | None (funding fee instead) | PMI if <20% down |
| Rate | Typically 0.25–0.5% below conventional | Market rate |
| Funding fee | 1.25%–3.3% (varies, waived for disabled vets) | None |
| Min FICO | 580 (lender-dependent) | 620–640 (3% down programs) |
| Max DTI | No hard cap (residual income-based) | 45–50% |
| Property types | Primary residence (1–4 units owner-occ) | Primary, second home, investment |
| Loan limits | None with full entitlement | County conforming limit (for 3% down programs) |
| MIP/PMI removal | N/A — no monthly MI | Automatic at 80% LTV (conventional) |
When VA wins
You have 0% or less than 20% down: VA is almost always better. No PMI saves $150–$400/month on a $400,000 loan versus conventional with PMI. The VA funding fee is typically paid once at closing versus PMI paid monthly for years.
The rate comparison: VA rates typically run 0.25–0.5% below conventional. On a $400,000 loan, that's $65–$130/month in savings — every month for the life of the loan.
High DTI: VA's residual income model allows much higher DTI than conventional. If you have significant monthly debt, VA can often qualify you when conventional can't.
When conventional might make sense
You have 20%+ down: At 20%+ down, conventional has no PMI. The VA funding fee (even at the lower first-use rate) may not justify VA for buyers putting substantial money down.
Investment properties or second homes: VA requires owner occupancy. Conventional is the path for investment properties and second homes.
If you've used VA and have no entitlement: Restoration takes time. Conventional bridges the gap.
Funding fee exemption matters: Veterans with 10%+ service-connected disability ratings are exempt from the VA funding fee — this tilts the math even more toward VA.
The bottom line
For eligible veterans buying a primary residence with less than 20% down, VA wins in the vast majority of scenarios. The combination of 0% down, no PMI, and lower rates delivers meaningful monthly and lifetime savings.
FAQs
Is a VA loan always better than conventional?
Not always. For eligible veterans buying a primary residence with less than 20% down, VA typically wins on cost. At 20%+ down, the VA funding fee (unless waived for a service-connected disability rating) may tip the math toward conventional. Investment properties and second homes require conventional — VA is owner-occupied only.
Do VA loans have a lower interest rate than conventional?
Typically yes — VA rates run about 0.25–0.5% below conventional for most borrowers. Combined with no PMI, that's meaningful monthly savings for the life of the loan.
Does the VA funding fee make VA worse than conventional?
Usually not. The funding fee is a one-time cost (typically 2.15% on first use with 0% down) that can be financed into the loan. Compared to years of monthly PMI on conventional with less than 20% down, VA still wins in most scenarios. Veterans with 10%+ service-connected disability ratings are exempt from the funding fee entirely.
Can I use my VA loan for an investment property?
No — VA loans are for owner-occupied primary residences only (1–4 units, with you living in one unit for multi-unit properties). Investment properties require conventional or DSCR financing.
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