Conventional vs. VA loans

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 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.

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Name	Product	Loan products offered	State availability	Min. credit score
SoFi (NMLS #1121636)		Conventional, Home equity, Refinance	Not available in: HI, MO, NM, NY, WV	620	No hidden fees, multiple loan terms, and member discounts available.	See rates More Info		loading Fetching your data...
Rocket Mortgage (NMLS #3030)		Conventional, Jumbo, FHA, VA, Refinance	Available in all states	620	Streamline your mortgage from quote to final payment — all from your computer or phone.	See rates More Info		loading Fetching your data...
Better (NMLS #330511)		Conventional, Jumbo, FHA, Refinance	Not available in: HI, MA, MN, NV, NH, VT, VA	620	Online preapproval in minutes and no origination fees with this direct lender.	See rates More Info		loading Fetching your data...
LendingTree (NMLS #1136)		Conventional, Jumbo, FHA, VA, USDA, Home Equity, HELOC, Reverse, Refinance	Available in all states	620	Connect with vetted home loan lenders quickly through this online marketplace.	See rates More Info		loading Fetching your data...

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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.