VA Loan vs Conventional — Complete Comparison
VA vs Conventional: Which Mortgage Is Better?
If you’re a veteran or active-duty service member, you have a choice most buyers don’t: a VA-backed mortgage alongside conventional financing. Both can work well, but they serve different situations. VA loans save money through zero down payment and no PMI, while conventional loans offer more flexibility on property types and occupancy requirements.
This comparison breaks down every difference that matters when choosing between the two.
Complete Comparison Table
| Feature | VA Loan | Conventional Loan |
|---|---|---|
| Down payment | 0% | 3% minimum (5-20% typical) |
| Mortgage insurance | None | PMI required below 20% down |
| One-time fee | 2.15% funding fee (first use, $0 down) | None |
| Interest rate | Typically 0.25-0.50% lower | Market rate |
| Credit score | 620+ (most lenders) | 620+ (740+ for best pricing) |
| DTI ratio | No hard cap; residual income test | 43-50% max |
| Loan limits | None (full entitlement) | $832,750 (conforming) |
| Property types | Primary residence, 1-4 units | Primary, second home, investment |
| Seller concessions | Up to 4% | 3-9% (varies by down payment) |
| Assumable | Yes | Generally no |
| Appraisal | VA-assigned appraiser, MPR standards | Lender-ordered, less stringent |
| Closing time | 30-40 days | 25-35 days |
Total Cost Comparison: Real Numbers
Here’s what each loan actually costs on a $350,000 purchase over 30 years:
| Cost Element | VA (0% down) | Conventional (5% down) | Conventional (20% down) |
|---|---|---|---|
| Down payment | $0 | $17,500 | $70,000 |
| Loan amount | $350,000 | $332,500 | $280,000 |
| Funding fee / PMI upfront | $7,525 (rolled in) | $0 | $0 |
| Total financed | $357,525 | $332,500 | $280,000 |
| Monthly P&I (6.5% rate for VA, 6.75% conventional) | $2,261 | $2,156 | $1,816 |
| Monthly PMI | $0 | ~$165 | $0 |
| Total monthly (P&I + insurance) | $2,261 | $2,321 | $1,816 |
| Cash needed at closing | ~$5,000 (closing costs only) | ~$22,500 | ~$75,000 |
Even with the 2.15% funding fee, the VA loan produces a lower monthly payment than the 5%-down conventional option — and requires $17,500 less cash at closing. The 20%-down conventional wins on monthly cost but requires $70,000 upfront. Run your own scenario through the calculate monthly costs.
PMI vs VA Funding Fee
This is the core trade-off. Conventional loans charge PMI on loans with less than 20% down. VA loans charge a one-time funding fee instead of ongoing monthly insurance.
PMI on a $332,500 conventional loan typically costs $140 to $200 per month. Over the years it takes to reach 20% equity (usually 7-10 years with normal appreciation and payment), you’d pay $11,760 to $24,000 in PMI.
The VA funding fee on a $350,000 loan is $7,525 — a one-time charge. There is no monthly insurance cost after that. The break-even point where VA’s funding fee becomes cheaper than conventional PMI usually falls between 3 and 5 years.
For veterans with service-connected disability ratings, the comparison is even more one-sided: the funding fee is waived entirely, making the VA loan essentially free of any insurance costs.
When VA Loans Win
- Limited cash reserves: Zero down payment means you preserve savings for moving costs, furnishing, and emergency funds.
- Primary residence purchase: VA’s lower rates and no PMI make it the cheapest option for your main home in most scenarios.
- Lower credit scores: VA lenders are more lenient because of the government guarantee. A 640-credit-score borrower gets better VA terms than conventional terms.
- High DTI ratios: VA uses a residual income test rather than a strict DTI cap, meaning borrowers with higher debt loads but adequate remaining income can still qualify.
- Disability-rated veterans: Funding fee waiver makes VA the clear winner.
- Jumbo purchases: No loan limit with full entitlement means you can buy above $832,750 with zero down — impossible with conventional conforming loans.
When Conventional Loans Win
- Investment properties: VA is primary-residence only. For rental properties, you need conventional (or DSCR) financing.
- Second homes: Vacation properties require conventional financing.
- 20% down payment available: With a large down payment, conventional loans avoid both PMI and the VA funding fee, resulting in the lowest possible monthly payment.
- Competitive markets: Some sellers (incorrectly) view VA offers as riskier. A conventional offer with strong financials can sometimes beat a VA offer in a bidding war.
- Faster closing needed: Conventional loans close slightly faster (25-35 days vs 30-40 for VA) since there’s no VA appraisal assignment process.
- Subsequent use without selling: If you have a current VA loan and want to buy again without selling, your remaining entitlement may not cover a zero-down purchase. A conventional loan avoids this complication.
The Assumability Advantage
One often-overlooked benefit of VA loans: they’re assumable. A future buyer can take over your VA loan at its existing interest rate, subject to lender and VA approval. In a rising-rate environment, a below-market-rate VA loan significantly increases your home’s value to buyers.
Conventional loans are generally not assumable. This makes VA loans a potential long-term asset if rates rise after you lock in your loan.
The catch: when someone assumes your VA loan, your entitlement remains tied to that property until the loan is paid off — unless the buyer is also a veteran who substitutes their own entitlement.
Using Both: The Hybrid Strategy
Some veterans use their VA loan for their primary residence and conventional loans for investment properties. This approach combines the cost savings of VA on your main home with the flexibility of conventional financing for building a rental portfolio.
For example, you might purchase your primary home with a VA loan (0% down, no PMI), then use conventional financing at 20-25% down for a rental property. The rental income helps qualify for the investment loan, and your VA benefit keeps your personal housing costs low. Review our rental property calculator to model investment scenarios. Try our budget calculator to see what fits your budget. Review the home buying timeline to understand each step of the process.
Frequently Asked Questions
Can I have a VA loan and a conventional loan at the same time?
Yes. You can hold both simultaneously. Your VA loan must be on your primary residence, and the conventional loan can be on an investment property or second home.
Should I use VA or conventional for a condo?
If the condo is VA-approved, the VA loan is typically cheaper. If the complex isn’t on the VA approved list and a spot approval seems unlikely, conventional may be your only option. Check the VA’s condo search tool first.
Does using a VA loan hurt my chances in a bidding war?
It can, though the perception is often worse than reality. VA-financed purchases close at similar rates to conventional. Having a strong pre-approval letter, offering flexible terms, and working with an agent experienced in VA transactions helps level the field.
Can I convert a conventional loan to a VA loan?
You can’t convert, but you can refinance a conventional loan into a VA loan. This requires a VA appraisal and standard underwriting. It often makes sense when rates drop or when you want to eliminate PMI.
What if the VA appraisal comes in low?
You can negotiate a lower purchase price with the seller, pay the difference in cash, request a Reconsideration of Value with supporting comparable sales data, or walk away from the transaction. The VA appraisal protects you from overpaying.
Is the VA funding fee worth it compared to a 5% down conventional loan?
In most cases, yes. The funding fee (2.15% first use) is lower than the cumulative PMI you’d pay on a 5%-down conventional loan before reaching 20% equity. The break-even typically occurs within 3-5 years, after which the VA loan continues saving you money every month.