If you served, you have access to the VA loan — one of the most powerful mortgage products ever created. But is it always the right choice? Here’s an honest comparison so you can make the right call for your situation.
What Is the VA Loan?
The VA loan is a mortgage benefit available to eligible veterans, active duty service members, and surviving spouses. It’s guaranteed by the Department of Veterans Affairs, which means lenders can offer better terms than they otherwise would.
The core advantages are significant. No down payment required. No private mortgage insurance. Competitive interest rates. Flexible credit requirements. These four features alone make the VA loan the most favorable mortgage product available to any buyer in any market.
What Is a Conventional Loan?
A conventional loan is a standard mortgage not backed by the government. It’s available to anyone who qualifies based on credit score, income, and down payment. Most conventional loans require at least 3 to 5 percent down, and if you put less than 20 percent down you’ll pay private mortgage insurance every month until you reach 20 percent equity.
Side by Side Comparison
Down payment: VA loan requires zero. Conventional requires 3 to 20 percent depending on the program.
Private mortgage insurance: VA loan has none. Conventional loans require PMI if you put less than 20 percent down, typically adding $100 to $300 per month to your payment.
Interest rates: VA loans typically run 0.25 to 0.5 percent lower than conventional rates. On a $400,000 loan that’s a meaningful difference over 30 years.
Funding fee: VA loans charge a one-time funding fee of 1.25 to 3.3 percent of the loan amount depending on your down payment and whether it’s your first use. This fee can be rolled into the loan. Veterans with a service-connected disability rating are exempt from the funding fee entirely.
Credit requirements: VA loans are more flexible, with many lenders approving borrowers at 580 to 620. Conventional loans typically require 620 to 680 for the best rates.
Property requirements: VA loans require the property to meet minimum property requirements set by the VA. This can occasionally complicate deals on distressed or fixer-upper properties. Conventional loans have no such requirements.
When the VA Loan Wins
The VA loan is almost always the better choice if you have little to no savings for a down payment, if you want to eliminate PMI, if you’re buying a move-in ready property, or if you plan to use the house hacking strategy with a multifamily property.
For most veterans buying a primary residence the VA loan is the clear winner. The combination of zero down and no PMI saves tens of thousands of dollars compared to a conventional loan over the life of the mortgage.
When a Conventional Loan Might Make Sense
There are a few scenarios where a conventional loan could make sense for a veteran.
If you’re buying a property that won’t pass VA inspection — such as a fixer-upper or distressed property — a conventional loan gives you more flexibility. You could buy with conventional financing, renovate, then refinance into a VA loan later.
If you have 20 percent or more to put down and want to preserve your VA entitlement for a future investment property, a conventional loan on your current purchase might be worth considering.
If you’re buying in a very competitive market where sellers prefer conventional offers, a conventional loan can occasionally help your offer stand out — though this is becoming less of a factor as VA loans are better understood by sellers and agents.
The Bottom Line
For the vast majority of veterans buying a primary residence, the VA loan wins. The zero down payment and elimination of PMI alone make it the most cost-effective mortgage available.
Use your benefit. That’s what it’s there for.
For a complete breakdown of how to maximize your VA loan benefit, VA Loans for Dummies is the most comprehensive guide available.