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Conventional vs. VA loans
See which type of loan could get you the best mortgage terms and rates.
If you qualify for a Veterans Association (VA) home loan, it’s worth considering some of the benefits and drawbacks of a VA loan vs. a conventional loan.
Surveys show that many veterans either don’t realize that VA loans exist or are misinformed about how they work. Before deciding which is right for you, find out how to get the best possible loan rates and options for your new home.
How do conventional loans differ from VA loans?
The biggest difference between conventional and VA loans is VA loans are backed by the government, protecting lenders in case you can’t pay back your loan.
Conventional loans require borrowers to purchase private mortgage insurance (PMI). This can cost hundreds of dollars a month and offers you no protection — rather, it protects the bank if you default on your loan.
Even with the savings on a down payment and PMI, there are pros and cons to both types of loans.
Conventional vs. VA loans
| Conventional | VA | |
|---|---|---|
| Interest Rates | Generally higher than for VA loans. | Generally lower than for conventional loans. |
| Fees | No loan origination fee, but lender fees may apply. | Requires upfront loan origination fee. |
| Down payment | Some programs offer 3% or lower down payment, but you’ll need PMI if less than 20%. | None required. |
| Credit score | No set minimum, but most lenders look for a FICO score of at least 620. | FICO score of 620 or higher usually required. |
| Restricted uses | Can be used for primary and secondary residences, as well as investment properties. | Must meet VA loan eligibility requirements and can only be used for a primary residence. |
Learn more about conventional loans | Learn more about VA loans |
Choose a conventional home loan if you:
- Are looking to finance a primary residence, secondary residence, or investment property.
- Want to skip the loan origination fee.
- Have a low credit score.
Avoid this loan type if you:
- Have less than 20% saved for a down payment.
- Want to avoid higher interest rates.
Compare conventional lenders
Choose a VA home loan if you:
- Want a home loan without PMI.
- Have no down payment set aside.
- Are looking for a lower interest rate.
Avoid this loan type if you:
- Are financing a secondary residence or investment property.
- Want to avoid the loan origination fee.
Compare VA lenders
Case study
Ralph has served for 10 years in the National Guard and is therefore eligible for a VA loan. He’s looking to purchase his first home, which would be his primary residence, but only has a small amount saved up for a down payment. In Ralph’s case, getting a VA loan for his home would most likely make the most sense, since he wouldn’t be required to have a down payment and won’t have to pay for private mortgage insurance.
Bottom line
Understanding your loan options is an important first step when buying a home or investment property. In most cases, if your home and property are eligible for a VA loan, the benefits outweigh the drawbacks.
If you don’t qualify for a VA loan, there are a number of conventional loan options and programs that can help make your new home as affordable as possible.
Before making a decision, check out a few different lenders and compare all of your home loan options.
Frequently asked questions
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