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Conventional vs. VA loans

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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 the 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 doesn’t protect you — it protects the bank in case 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

ConventionalVA
Interest RatesGenerally higher than for VA loans.Generally lower than for conventional loans.
FeesNo loan origination fee, but lender fees may apply.Requires 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 scoreNo set minimum, but most lenders look for a FICO score of at least 620.FICO score of 620 or higher usually required.
Restricted usesCan 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.
Name Product Min. down payment Origination fee
LendingTree
LendingTree
3.5%
Depends
Connect with vetted home loan lenders quickly through this online marketplace.
See rates
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First Internet Bank
First Internet Bank
3.5%
N/A
Competitive rates and no prepayment penalties on a variety of loans.
See rates
More Info
loanDepot
loanDepot
3.5%
1.0% to 5.0%
A nontraditional lender offering impartial guidance on a range of loans, though with potentially high fees.
See rates
More Info
Quicken Loans
Quicken Loans
3%
0.5% to 1.0%
Flexible options, fast approvals and support online backed by a trusted brand.
See rates
More Info
Rocket Mortgage
Rocket Mortgage
3%
0.5% to 1.0%
Streamline your mortgage from quote to final payment — all from your computer or phone.
More Info

Compare up to 4 providers

Name Product Min. down payment Origination fee
NBKC Bank
NBKC Bank
0%
None
No lender fees and an easy online application from this top VA lender.
See rates
More Info

Compare up to 4 providers

Benefit and drawbacks of conventional loans

ProsCons
  • No loan origination fee
  • Can be used for primary residences, secondary residences and investment properties
  • No set minimum credit score
  • Requires PMI if down payment is less than 20%
  • Down payment required
  • Generally has higher interest rates than federally-backed loans

Benefit and drawbacks of VA loans

ProsCons
  • No PMI required
  • No down payment required
  • Generally offers lower interest rates
  • Can only be used for a primary residence
  • Must meet eligibility requirements
  • Loan origination fee required

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

Gabrielle Pastorek

Gabrielle Pastorek writes about fashion, beauty and finance. Gabrielle loves helping people find a great deal, whether it's in their shopping cart or on a credit card. In her free time, she exercises her creative muscles by writing short stories.

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