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VA Loan vs. Conventional Loan: Which Mortgage Option Is Best for You?
As a veteran, you have a wider range of options when searching for a home loan, so comparing them can be beneficial. While conventional loans are an option, VA home loans might also be available. VA loans are mortgages available to veterans, active-duty service members, and surviving spouses. The Department of Veterans Affairs guarantees a portion of the loans, which can allow lenders to offer more favorable terms and conditions.
You might believe a traditional loan is more advantageous for the long term, but in many cases, a VA loan can save you more money if you qualify. To help you determine the best option for you, here is some key information about both types of loans.
On This Page
- What Is a VA Loan?
- What Is a Conventional Loan?
- VA Loan vs. Conventional Loan: Side-by-Side Comparison
- Pros and Cons of VA Loans
- Pros and Cons of Conventional Loans
- When Should You Choose a VA Loan?
- When Should You Choose a Conventional Loan?
- FAQs About VA vs. Conventional Loans
- Need the Best Mortgage Option for You?
What Is a VA Loan?
A VA home loan is a mortgage specifically designed to help veterans, active-duty service members, and surviving spouses purchase or refinance homes. While private lenders issue these loans, they are guaranteed by the U.S. Department of Veterans Affairs.
Eligibility Requirements
VA home loans are available only to qualifying veterans, active-duty service members, or surviving spouses who meet the VA’s eligibility requirements.
Key Features
VA home loans are backed by the government, providing lenders with the security to offer more favorable terms and conditions to veterans and other eligible borrowers. These loans generally do not require a down payment, so they can provide up to 100% financing, and do not require private mortgage insurance, or PMI.
Common Uses
VA home loans are perfect for buying a home, refinancing your current home, or accessing your home’s equity for cash.
What Is a Conventional Loan?
A conventional loan is a mortgage provided by a private lender. They are generally not insured by the government, although government-sponsored groups like Fannie Mae may back some loans.
Eligibility Requirements
Anyone can apply for a conventional loan, but you must meet certain criteria to be approved. Conventional loans may require a down payment, a certain debt-to-income ratio, and a minimum credit score.
Key Features
Traditional home loans are available to anyone. Thus, more lenders offer them, giving lenders more options. Conventional loans have some flexibility regarding down payment amounts and require borrowers to pay for PMI for mortgages with less than 20% down.
Common Uses
Conventional loans are available to most borrowers, including those not eligible for VA loans. They enable borrowers to purchase or refinance primary residences, investment properties, second homes, or vacation homes.
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VA Loan vs. Conventional Loan: Side-by-Side Comparison
VA and conventional loans can help you secure the mortgage you need to buy your home, but understanding each option can help you make a better decision.
Down Payment Requirements
VA loans typically don’t require a down payment, while conventional loans usually require a down payment between 3% and 20%.
Private Mortgage Insurance (PMI) vs. VA Funding Fee
VA loans do not require a down payment, but borrowers typically must pay a funding fee. This fee ranges from 1.25% to 3.3% of the loan’s value, depending on the borrower’s military status, service history, and whether it is their first VA loan. The fee can be paid upfront or rolled into the mortgage. Certain veterans, such as those with service-connected disabilities, may be exempt from this fee.
While VA loans do not require PMI, Conventional loans require it for loans with less than 20% down. This is typically a monthly fee added to the mortgage payment and can range from $150 to $200 per month.
Interest Rates
Due to the government’s guarantee, VA loans typically have lower interest rates than conventional loans. Conventional loan interest rates depend on the industry standard. For all loans, the rates vary by lender and rely on your credit score and loan terms.
Closing Costs
If you obtain a conventional loan, closing costs typically range from 3% to 6% of the loan amount. VA loans have caps and certain other limits on closing costs, preventing lenders from charging borrowers excessively high fees. These generally result in lower closing costs compared to those for conventional loans.
Loan Limits
The VA has removed loan limits for eligible borrowers who have full entitlement to their benefits, allowing them to borrow as much as they need.
Conventional loans also have no limits. However, the Federal Housing Finance Agency sets limits for FHA loans, which vary by the property’s location. The current baseline limit value for one-unit properties in 2025 is $806,500.
Flexibility
Conventional loans offer borrowers the flexibility to purchase any type of property, whether it’s their primary residence, an investment property, or a vacation home. On the other hand, VA loans only permit borrowers to purchase a home that will serve as their primary residence, making this restriction more limiting than conventional loans.
Pros and Cons of VA Loans
If you qualify for a VA loan, you’ll enjoy several advantages, including no required down payment, lower interest rates, and no mortgage insurance.
Some drawbacks include residence restrictions. For instance, the financed property must be your primary residence. These loans can also have a steep funding fee, which might be substantial upfront but can be rolled into the loan and, in some cases, waived.
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Pros and Cons of Conventional Loans
If you decide to pursue a conventional home loan, you will have more options for the kind of property you can purchase, whether that’s a primary residence or not. These loans do not require a funding fee and can offer flexible loan limits.
Unlike VA loans, conventional loans require a down payment. If your down payment is less than 20%, you will need PMI, and some loans require higher minimum credit scores.
When Should You Choose a VA Loan?
Consider all aspects of your mortgage needs before choosing between a conventional or VA home loan.
You qualify for a VA loan if you’re a veteran, active-duty service member, or surviving spouse. A VA loan is ideal for first-time homebuyers, those with limited savings, or individuals seeking to refinance their existing homes. VA home loans also have lower interest rates and can save you money in the long run compared to other loans, operating without a down payment or requiring PMI.
When Should You Choose a Conventional Loan?
Conventional or FHA loans are a great option if you’re not eligible for VA loans or hoping to use VA funds for something else. A traditional loan would also be the best option if you’re looking to buy anything other than a primary residence or avoid a funding fee.
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FAQs About VA vs. Conventional Loans
Can You Switch From a Conventional Loan to a VA Loan?
Yes, you can switch from a conventional loan to a VA loan through refinancing. If you have a traditional mortgage and qualify for a VA loan, refinancing allows you to use a VA loan.
Are VA Loans Always Better Than Conventional Loans?
VA loans are often preferable to conventional ones. However, they are not always better, especially if you’re looking to purchase a property other than a primary residence.
Do VA Loans Have Better Interest Rates?
Yes, VA loans generally have better interest rates than conventional loan offers.
How Do FHA Loans Compare?
VA loans typically carry lower interest rates than FHA loans because of the VA loan guarantee. FHA loans still tend to have lower rates than private mortgage loans, and your interest rate can vary based on your credit score and the loan term.
Need the Best Mortgage Option for You?
VA loans are only available to veterans or service members, while anyone can apply for conventional loans. VA loans are typically more flexible regarding their financial requirements, but only allow borrowers to finance a primary residence. Meanwhile, borrowers can finance any type of property with a conventional loan.
If you’re a veteran, consider and evaluate the benefits of conventional and VA loans and what might be better for your financial goals and property needs. Speak with a VA-approved lender to explore options.
Last Date Modified
November 25, 2025
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