VA vs. Conventional Loans: Which is Better?

Choosing the right mortgage is one of the most important decisions when buying a home. Two common options, VA loans and conventional loans, each offer unique benefits depending on your situation.

If you're a Veteran or active-duty service member and are looking to save on upfront costs, a VA loan might be the ideal choice, offering no down payment and lower rates. If you're seeking more flexibility or a loan for a secondary property, a conventional loan might be a better fit.

By understanding the key differences, like down payment requirements, interest rates, and eligibility, you can make a more informed decision that aligns with your financial goals.

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VA vs. Conventional Loan Interest Rates

Interest rates play a major role in the overall cost of a mortgage, making them a key factor when choosing between a conventional loan and VA loan. VA loans generally come with lower interest rates because the government backs them, reducing risk for lenders.

In fact, based on 2024 HMDA data accessed through Polygon, the average VA loan rate was nearly a percentage point lower than conventional loan rates.

Conventional loan interest rates are often more variable based on down payment size and credit score compared to VA loans. Borrowers with excellent credit and a sizable down payment may qualify for highly competitive rates, sometimes even lower than those offered on VA loans.

If you have strong credit and savings for a down payment, a conventional loan could offer better long-term savings, depending on the overall loan structure.

VA Funding Fee vs. Private Mortgage Insurance (PMI)

Another significant cost difference when comparing a VA vs. conventional loan is how each handles mortgage-related fees. While VA loans require a one-time VA funding fee, conventional loans require recurring private mortgage insurance (PMI) when the down payment is less than 20%.

The VA funding fee is an upfront fee paid to the Department of Veterans Affairs that helps offset the cost of the VA loan program to taxpayers. The amount depends on factors such as loan type, down payment, and whether the borrower has used a VA loan before. Certain Veterans with service-related disabilities are exempt from paying the VA funding fee.

A loan expert can check your VA funding fee exemption eligibility. Get started here

PMI, on the other hand, is a recurring expense required on conventional loans with down payments of less than 20%. Unlike the one-time VA funding fee, PMI is charged monthly and protects the lender in case of default. The cost varies based on credit score, down payment, and loan amount.

VA Funding Fee vs. PMI: Cost Comparison Example

A first-time VA homebuyer who puts no money down typically pays 2.15% of the loan amount. On a $300,000 home, this amounts to $6,450. If that same buyer puts down 5%, the fee drops to 1.5%, reducing the cost to $4,500. Borrowers can roll this fee into the loan, eliminating the need for an upfront payment.

With PMI, a borrower putting down 5% on a $300,000 home might pay around $150 per month in PMI, while someone with a 10% down payment could see that cost drop closer to $100 per month.

The biggest advantage of PMI is that it can be removed once the borrower reaches 20% equity in the home, reducing overall loan costs.

For homebuyers deciding between these loan options, affordability depends on financial priorities. VA loans may be the better choice for those looking to minimize upfront costs, as the funding fee is a one-time expense rather than a monthly charge. However, borrowers who plan to put down 10% or more and prefer the option to remove PMI later may find a conventional loan more cost-effective in the long run.

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VA vs. Conventional Eligibility Requirements

Both VA loans and conventional loans have their own eligibility requirements. Check out this comparison of some of the most important factors to consider:

Let’s take a closer look at how eligibility requirements affect your overall costs for VA and conventional loans.

Credit Score

When qualifying for a conventional loan vs. VA loan, your credit score plays a significant role in determining eligibility and loan terms. While the VA itself doesn’t set a minimum credit score, most lenders prefer borrowers with at least a 620 score to qualify for competitive interest rates.

However, even if your credit isn’t perfect, you may still have a chance at securing a VA loan, especially since VA lenders tend to be more flexible when evaluating a borrower's overall financial picture.

For conventional loans, credit score requirements are stricter. A 620 score is typically the minimum needed to qualify, but lenders often reserve the best interest rates for borrowers with higher scores. If your score is in the 700s or higher, you’ll likely secure a much lower rate, which can lead to significant savings over the life of the loan.

Down Payment

For many homebuyers, saving for a down payment is one of the biggest hurdles to homeownership.

For buyers who qualify for a VA loan, the ability to purchase a home with zero down can make a huge financial difference. For those who can afford a larger down payment and want to avoid any extra fees, a conventional loan is likely best.

Loan Limits

Loan limits determine how much you can borrow without needing additional approval or a larger down payment.

VA loans don’t have a fixed limit for first-time users with full entitlement, meaning eligible borrowers can secure a loan for any amount their lender approves without needing a down payment.

On the other hand, if a borrower has already used part of their VA entitlement or has an existing VA loan, loan limits may apply. In these cases, the Federal Housing Finance Agency (FHFA) sets the limits, which vary by county and are typically similar to conventional loan limits. In high-cost areas, VA borrowers may qualify for higher loan amounts.

Conventional loans, by contrast, follow strict loan limits set by the FHFA. For most of the U.S., the conforming loan limit is $806,500 in 2025, though this can be higher in high-cost areas. Borrowers needing a loan above this amount must apply for a jumbo loan, which comes with stricter credit, down payment, and income requirements.

VA loans may offer more flexibility for borrowers looking to finance a more expensive home, especially for those with full entitlement. For those opting for a conventional loan, staying within the conforming loan limit is key to securing the most favorable terms.

Debt-to-Income

Debt-to-income (DTI) compares your monthly debt obligations, such as credit cards, car loans, and student loans, to your gross monthly income.

VA loans tend to be more flexible with DTI. While the VA doesn’t set a strict limit, most lenders prefer a DTI of 41% or lower. Fortunately, exceptions are often made for borrowers with strong credit scores or significant financial reserves, allowing some to qualify even with a higher DTI.

Conventional loans typically have stricter DTI requirements. Most lenders prefer a DTI of 36% or lower, though some may accept up to 43% or more if the borrower has a higher credit score and strong financial history. Borrowers with a DTI above 45% may struggle to get approved or need to compensate with a larger down payment or additional assets.

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Appraisal

The appraisal process differs significantly between a conventional loan vs. VA loan, which can impact both approval and timeline.

VA loans require a VA appraisal, which must meet Minimum Property Requirements (MPRs) to ensure the home is safe and livable. These standards are stricter than those for conventional loans, meaning properties in need of repairs may not qualify. The process can also take longer due to additional review steps.

Conventional loans have more flexible appraisal requirements. While the home must still be valued appropriately, lenders are generally more lenient about property conditions. This makes conventional loans a better option for homes needing repairs and can result in a faster closing process.

Lender Fees

VA loans limit the fees lenders can charge, helping Veterans save on costs like broker fees and prepayment penalties. Most VA lenders charge a loan origination fee, which can be up to 1% of the loan amount. This is a standard part of VA closing costs and is the primary lender fee allowed under VA guidelines. Other charges, like underwriting or processing fees, must be included in this 1% cap unless waived.

Conventional loans have fewer fee limitations, meaning borrowers may face higher closing costs, including origination and application fees. While some costs can be negotiated, they add to the overall expense of the loan.

Conventional vs. VA Seller Concessions

Seller concessions can help reduce your out-of-pocket expenses when buying a home, and the amount a seller can contribute depends on whether you choose a VA vs. conventional loan.

With a VA loan, you can receive up to 4% of the home’s purchase price in seller concessions, which can significantly lower your closing costs and make homeownership more affordable.

For conventional loans, seller concessions are more limited, typically ranging from 3% to 6%, depending on the loan amount and property type. If you're making a smaller down payment, the allowable seller contribution is lower.