HomeLearning CenterVA Loans vs. Conventional Loans: A Veteran’s Guide

VA Loans vs. Conventional Loans: A Veteran’s Guide

Explore the differences between VA loans and conventional loans. Understand benefits like no down payment, no PMI, and flexible credit standards to make an informed homebuying choice.

Apply Today!

First name *

Last name *

Email *

Phone number *

Property location *

Do you currently have a VA loan? *

By checking this box and clicking “Submit” below, you provide your electronic signature and expressly consent to receive marketing SMS/texts messages from or on behalf of NewDay USA – Including texts made using an autodialer or an automated system for selection and/or dialing of numbers-to the number(s) you provided above. Your consent is not required to obtain a mortgage or do business with us. Message frequency may vary. Message and data rates may apply Text HELP for assistance. To opt-out at any time, reply STOP.

By checking this box and clicking “Submit” below, you also provide your electronic signature and expressly consent to receive telephonic sales and marketing calls from or on behalf of NewDay USA – Including calls made using an autodialer, an automated system for the selection and/or dialing of numbers, or an artificial or prerecorded voice- to the number(s) you provided above. (You likewise will receive emails to the address you provided.) Your consent is not required to obtain a mortgage or do business with us.

By checking the box and clicking "Submit", you also agree to our Privacy Policy and Terms with an Arbitration Agreement and Class Action Waiver.

If you do not wish to receive automated marketing calls or texts, please do not submit this form and instead call us at 800-405-4187 to start or complete your loan request.

TrustScore 4.6

9530 reviews

As a Veteran or Active-Duty Service Member, you've earned unique advantages, especially when it comes to one of the most significant investments of your life: buying a home. The VA home loan is a powerful tool designed to make homeownership more accessible and affordable for our nation's heroes. But how does it stack up against a conventional loan?

This guide will walk you through a detailed comparison of VA loans and conventional loans, empowering you to make an informed decision and take the next step toward achieving the American Dream.

Understanding the VA Home Loan

A VA home loan is a mortgage option guaranteed by the U.S. Department of Veterans Affairs. This government backing gives lenders a greater degree of security, allowing them to offer more favorable terms to eligible Veterans, Active-Duty Service Members, and select military spouses.

VA lenders who focus on serving Veterans are experienced in navigating the VA process and helping borrowers take full advantage of their benefits.

Key Benefits of VA Loans

No Down Payment Required

One of the most important benefits of the VA loan is that it often requires no down payment. For many Americans, saving tens of thousands of dollars for a down payment is a huge obstacle to homeownership. The VA loan may eliminate that hurdle for military families entirely, allowing eligible borrowers to finance up to 100% of the home’s value.

No Private Mortgage Insurance (PMI)

Most conventional loans require private mortgage insurance (PMI) when the down payment is less than 20%. PMI protects the lender, not the borrower, and can add $100 to $300 or more to a monthly mortgage payment. VA loans do not require PMI, which directly lowers monthly housing costs.

Flexible Credit Standards

The VA itself does not set a minimum credit score requirement. While individual lenders may establish their own benchmarks, this flexibility allows Veterans who have faced financial challenges to still qualify.

Limits on Closing Costs

The VA limits what closing costs can be charged, keeping expenses fair and manageable. For many Veterans, this cap makes the difference between being able to close on a home or not.

Eligibility Overview

To qualify, borrowers must meet service requirements, typically including:

At least 90 days of active duty during wartime, or
181 days of active duty during peacetime, or
Six years in the National Guard or Reserves, or
Being the surviving spouse of a service member who died in service or from a service-related cause.

Each borrower must also obtain a Certificate of Eligibility (COE) from the VA to confirm their qualification.

The VA Funding Fee Explained

While VA loans don't have PMI, they do have a VA funding fee. This is a one-time fee that helps to cover the costs of the VA loan program, ensuring it remains available for future generations of Veterans. The fee varies depending on your service, the amount of your down payment, and whether it's your first time using your VA loan benefit.

First-time use with no down payment (less than 5%): 2.15% of the loan amount
Subsequent use with no down payment (less than 5%): 3.3% of the loan amount

Importantly, many Veterans with service-connected disabilities are exempt from the VA funding fee. The fee can also be rolled into the total loan amount, so you don't have to pay it up front.

What is a Conventional Loan?

A conventional loan is a mortgage that is not insured or guaranteed by the federal government. These are the most common type of mortgages and are offered by a wide range of lenders.

Key Requirements of Conventional Loans

Down Payment

Conventional loans typically require at least 3% down. To avoid PMI, most lenders require a down payment of 20% or more. On a $300,000 home, that would mean bringing at least $60,000 to closing.

Credit Score

Conventional lenders usually require a minimum credit score. Borrowers with higher scores generally receive lower interest rates, while those with lower scores may pay significantly more in interest over time.

Debt-to-Income Ratio

Lenders evaluate the borrower’s debt-to-income (DTI) ratio, which compares monthly debt payments to gross monthly income.

For a strong borrower with excellent credit and substantial savings, conventional loans can be competitive. For many families, especially first-time buyers, the upfront costs are a barrier that may delay homeownership for years.

Which Loan is Right for You?

For most eligible Veterans, the VA loan can be the most cost-effective choice. The benefits of no down payment, no PMI, and more flexible credit requirements can make it an unbeatable option. It's a benefit you've earned through your service, and it's designed to make homeownership a reality.

A conventional loan may be a better option in a few specific scenarios:

Purchasing an Investment Property: VA loans are for primary residences only. If you're buying a vacation home or an investment property, a conventional loan may be the way to go.
If You Have a Large Down Payment: If you have a down payment of 20% or more, a conventional loan may be competitive. However, it's always worth comparing the interest rates and closing costs of both options.

Final Thoughts

For most eligible Veterans, the VA loan is the clearest path to affordable, sustainable homeownership. It removes barriers like down payments and PMI while offering competitive terms designed specifically for those who served.

If you’re ready to explore your options, you can learn more by exploring guides on the VA loan process to see how your service can unlock the benefits you’ve earned.

VA Loan vs. Conventional Loan FAQs

Here are answers to some of the most frequently asked questions comparing VA loans and conventional loans.

Can you use a VA loan more than once?

Yes. As long as entitlement is available, you can use the VA benefit multiple times.

Do VA loans have better rates?

Sometimes, yes. Because they are guaranteed by the government, VA loans may carry lower interest rates than conventional loans in some cases.

Can you switch from a VA loan to a conventional loan later?

Yes. Some Veterans refinance into a conventional loan to free up their VA entitlement for another purchase or to convert their home into a rental property.

Do VA loans take longer to close?

Not necessarily. With the right lender, VA loans can close quickly.

Is a conventional loan ever cheaper?

It depends on your credit, your down payment, and your specific circumstances. Talk to a loan expert to be sure.