VA Loans vs. Conventional Loans: How to Choose

The short answer

VA loans may come out ahead when you have a small down payment, are exempt from the funding fee, or want to avoid mortgage insurance. Conventional loans may come out ahead when you have 20% or more to put down, strong credit, or you’re buying a second home or rental.

Side by side

	VA loan	Conventional loan
Who can use it	Eligible veterans, service members and certain surviving spouses	Anyone who qualifies
Down payment	None required in most cases	As little as 3% for some buyers; 20% avoids mortgage insurance
Mortgage insurance	None	Required below 20% down; can be removed later
Upfront fee	One-time VA funding fee, unless exempt	No funding fee
Property use	Primary residence only	Primary home, second home or investment property
Property standards	Must meet VA minimum property requirements	Generally more flexible
Rate types	Fixed and adjustable	Fixed and adjustable

Down payment

A VA loan doesn’t require a down payment in most cases, as long as the price isn’t above the appraised value. Conventional loans can go as low as 3% down for some buyers, but most borrowers put down more, and anything under 20% adds mortgage insurance.

Mortgage insurance

This is often the biggest difference. VA loans never charge monthly mortgage insurance. Conventional loans charge private mortgage insurance (PMI) when you put down less than 20%, though you can ask to cancel it once your balance reaches 80% of the home’s original value, and it ends automatically at 78%.

The VA funding fee

Most VA borrowers pay a one-time funding fee that can be added to the loan. It’s lower with a larger down payment and higher if you’ve used a VA loan before. Veterans receiving VA disability compensation, surviving spouses receiving Dependency and Indemnity Compensation and active-duty Purple Heart recipients are among those who don’t pay it. Current rates are on VA’s funding fee page.

Where the math can flip: with 20% or more down, a conventional loan has no mortgage insurance and no funding fee. If you aren’t exempt from the funding fee, that combination can make conventional the cheaper choice.

Credit and debt

VA doesn’t set a minimum credit score (Patriot’s minimum for a VA loan is currently 580, subject to change), and its underwriting weighs residual income, the money left each month after your bills, alongside your debt-to-income ratio. Conventional loans lean more heavily on your credit score, and a higher score can lower both your rate and your mortgage insurance cost.

Property type

A VA loan is for a home you’ll live in, including a two- to four-unit property if you live in one unit. Conventional loans can also finance second homes and investment properties. VA appraisals also check that the home is safe, sound and sanitary, so a home needing major repairs may be easier to buy with a conventional loan.

How to decide

1. Check your eligibility and funding fee status. If you’re exempt, VA may be hard to beat.
2. Look at your down payment. Under 20%, VA may cost less. At 20% or more, compare both.
3. Think about the property. Second homes and rentals need conventional financing.
4. Price both. A loan officer can put the two side by side: monthly payment, cash to close and total cost over the years you expect to stay.

This article is general information, not an offer to lend or a commitment to lend. All loans are subject to credit approval, underwriting and property valuation. Belem Servicing LLC, NMLS ID #715386 (NMLS Consumer Access).

Sources

• U.S. Department of Veterans Affairs, Purchase loan
• U.S. Department of Veterans Affairs, VA funding fee and loan closing costs
• Consumer Financial Protection Bureau, What is private mortgage insurance?