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Conventional vs. VA loans

See which option could get you the best 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 rates and options for your new home.

Conventional loans differ from VA loans in several ways

While VA loans are government-backed to protect lenders if you can’t repay your loan, conventional loans require borrowers to purchase private mortgage insurance (PMI) if the down payment is less than 20%. PMI can cost hundreds per month and offers you no protection. Instead, it protects the lender if you default on your loan.

Some other differences include:

Interest RatesGenerally higher than for VA loansGenerally lower than for conventional loans
Maximum loan amounts$510,400Can vary by region, but for 2020, the limit is $510,400 in most counties
Mortgage insurancePrivate mortgage insurance (PMI) required if down payment is less than 20%Not required
FeesNo loan origination fee, but lender fees may applyRequires upfront loan origination fee
Down paymentSome programs offer 3% or lower down payment, but you’ll need PMI if less than 20%None required
Credit scoreMost lenders look for a FICO score of at least 620FICO score of 620 or higher usually required
Restricted usesCan be used for primary and secondary residences, as well as investment propertiesMust meet VA loan eligibility requirements and can only be used for a primary residence

Learn more about conventional loans

Learn more about VA loans

Interest rates on VA loans can be lower

The rates for both types of loans are subject to market conditions and can be negotiated, but the guarantee on VA loans tends to lower the interest rates.

Maximum loan amounts are similar

A VA loan’s maximum amount is based on the maximum guarantee authorized by the VA. For 2020, that maximum guarantee is 25% of the loan up to $127,600 to bring the maximum loan amount to $510,400.

That same limit is applied to conventional loans backed by Fannie Mae and Freddie Mac, which have a maximum loan limit of $510,400 for a one-unit property in most areas.

Mortgage insurance isn’t required for VA loans

Most lenders require private mortgage insurance (PMI) on conventional mortgages with less than 20% down.

But you don’t have to pay PMI on a VA loan, even with no down payment, because the VA guarantees 25% of your loan.

Conventional loans can sometimes have fewer fees

There are standard fees charged for all conventional and VA loans. But the VA charges a one-time funding fee.

The fee can range anywhere from 1.25% to 3.3% of the loan amount depending on the loan you get, your loan history and whether you choose to pay a down payment. But if you receive VA disability compensation, you are exempt from the VA funding fee.

VA loans typically don’t require a down payment

Down payment requirements for conventional loans vary across lenders but typically start at 3% of the loan amount.

The VA doesn’t require a down payment as long as the loan amount stays within the loan limit for the county and the sales price doesn’t exceed the home’s appraised value.

VA loans have more lenient credit score requirements

Your credit score is used to determine your risk level in paying back the loan. The higher your score, the better your loan terms are likely to be. And while lenders don’t usually set a consistent minimum, most banks look for a score of 620.

However, with VA loans, there’s no minimum credit score requirement.

Conventional loans provide more flexibility

Conventional loans can be used for both primary and secondary residences as well as investment properties, but VA loans come with more restrictions.

The VA requires you to occupy the property as your primary residence and must approve condos using a list of restrictions that include how many units are owner-occupied. The VA loans on properties under construction on a select basis with VA-approved builders.

Compare mortgage lenders

Compare top brands by home loan type, state availability and credit score. Select See rates to provide the lender with basic property and financial details for personalized rates.

1 - 9 of 9
Name Product Loan products offered State availability Min. credit score
(NMLS #7872)
Freedom Mortgage
(NMLS #2767)
Freedom Mortgage
Conventional, Jumbo, FHA, VA, USDA, Refinance
Available in all states
A lender that excels in FHA and VA loans, offering low down payment options to borrowers.
Rocket Mortgage
(NMLS #3030)
Rocket Mortgage
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
Streamline your mortgage from quote to final payment — all from your computer or phone.
(NMLS #1168)
Conventional, Jumbo, FHA, VA, USDA, Refinance
Not available in: NY
Great customer reviews and customized rate quotes in three minutes with no SSN needed.
Veterans United
(NMLS #1907)
Veterans United
Conventional, FHA, VA, USDA, Jumbo, Refinance
Available in all states
Veterans United stands out from other lenders for its focus on serving the military community.
(NMLS #1121636)
Conventional, Jumbo, Home equity, Refinance
Not available in: HI
No hidden fees, multiple loan terms, and member discounts available.
Guaranteed Rate
(NMLS #2610)
Guaranteed Rate
Conventional, Jumbo, FHA, VA, Refinance
Available in all states
Find competitive rates and highly-rated customer service with this lender.
(NMLS #1429243)
Conventional, Jumbo
Not available in: AZ, HI, MA, MO, NV, UT
Preapproval in minutes and closing in as little as 3 weeks with no origination fees.
(NMLS #1136)
HELOC, Home Equity loans
Available in all states
Connect with vetted lenders quickly through this free online marketplace.

Compare up to 4 providers

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, a number of conventional loan options and programs can help make your new home as affordable as possible. Before deciding, check out several different lenders and compare all your options.

Frequently asked questions

What are the requirements to qualify for a VA loan?
To qualify for a VA loan, you must meet one of these requirements:

  • Served for at least 90 consecutive days during active wartime
  • Served for at least 181 consecutive days during peacetime
  • Served for six or more years in the National Guard or Reserves
  • Married to a service member who has died in the line of duty or as a result of a service-related injury

The property you wish to purchase with a VA loan must be your primary residence.

How do I reuse my VA loan?
Because your VA loan eligibility is considered an entitlement, you can use your full loan entitlement repeatedly as long as you’ve paid off your previous loan in full. There’s also a second-tier VA loan entitlement that allows you to possibly take out a secondary loan or get a new loan, even if you defaulted on a previous loan.

How can I get rid of PMI?
Most lenders will remove your PMI requirement after you have at least 20% equity in the home. Ask your lender about requirements specific to your mortgage to build this potential savings into your budget.

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