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When you weigh a VA loan vs conventional financing, the rule is simple: If you’re eligible for a VA loan, it’s likely that this will be your best loan option.
But while this is usually true, there are some unusual circumstances when a conventional mortgage might be the best option. Here are some variables to consider when choosing between a VA loan and a conventional loan.
Click here to see if you're eligible for a VA loan. (Nov 14th, 2026)
Benefits of a VA Loan vs a Conventional Loan
Many financial professionals will tell you that VA loans are quite simply the best mortgages available to homebuyers. And they’d be right in nearly all circumstances.
That’s because the U.S. Department of Veterans Affairs backs these mortgages. In the case of a foreclosure, the lender will still get some of its money back. This means your mortgage lender assumes less risk and they’ll pass that benefit along to you in a number of ways.
Zero Down Payment
VA loans are available to eligible borrowers with no money down.
Low Mortgage Rates
Mortgage rates change often (check today’s). But the VA says its loans offer better terms and interest rates than other loans from private lenders.
Low Minimum Credit Score
Importantly, VA loans can be easier to qualify for than conventional ones.
The VA itself doesn’t specify a minimum credit score. Mortgage lenders set their own credit score requirements, and some insist on higher scores than others.
No Mortgage Insurance
With other loan types, if your down payment is less than 20% of the purchase price of the home you’re buying, you’re nearly always on the hook for mortgage insurance. On FHA loans, this mortgage insurance goes by the name MIP (mortgage insurance premiums), while USDA loans charge a guarantee fee. For conventional loans, the term is PMI (private mortgage insurance). Many homeowners find the high monthly premiums, which can be payable for decades, a real burden.
But VA loans have no continuing mortgage insurance. Once you walk away from the closing table, you just have to pay your standard monthly mortgage payments (principal and interest), property taxes and homeowners insurance.
Other VA Loan Benefits
In addition to the four benefits discussed above, VA loans offer a number of other advantages, including:
- Flexibility. VA loans come in several different flavors including fixed rates and adjustable rates. Additionally, you can borrow over various terms, including 15, 20 and 30 years.
- No prepayment penalties. You can refinance or pay down your loan whenever you want without paying a financial penalty.
- No loan limits. The VA no longer imposes loan limits on borrowers with full entitlement, which means the size of your loan is only dependent on the maximum allowed by your VA lender. That means eligible borrowers can now get a jumbo VA loan under the same guidelines as with a standard VA loan.
- Freedom to comparison shop. The VA guarantees part of your loan but you borrow from a private-sector lender. This means you can comparison shop for the lowest rates and loan costs.
- Low closing costs. The VA caps certain closing costs so you may well find these are lower with a VA loan than for other types of mortgages.
- Streamline refinance option. As long as you don’t wish to take cash out with your refinancing, this refinance loan option means you can go through a quick, cheap and easy process.
Disadvantages of a VA Loan Compared With Conventional Loans
For most Americans, the biggest drawback is that they’re ineligible. You can only get a VA loan with a certificate of eligibility (COE) and they’re available only to those who meet certain service thresholds.
But there are other drawbacks that can sometimes affect those who have COEs. Here are some reasons you might consider a conventional mortgage instead.
VA Funding Fee
The VA funding fee is a lump sum paid on closing, a percentage of the home loan.
If you put down less than 5% and this is your first time using a VA loan, you’ll have to pay 2.15% of the loan amount. The fee drops to 1.5% with 5% or more down and 1.25% with 10% or more down. With less than 5% down, it goes up to 3.3% when you use a VA loan more than once.
The VA funding fee is not small. However, the VA says it helps lower the cost of the loan for U.S. taxpayers, since the program doesn’t require down payments or monthly mortgage insurance.
You can usually finance the VA funding fee into your mortgage so that it becomes part of your monthly payment. Though it’s not a tiny fee, it’s likely to cost less than the mortgage insurance that you would pay on a low down payment conventional or FHA loan.
Occupancy Requirements
The VA intends its loans to help service members buy homes, not investment properties. It expects you to occupy the property you purchase with a VA loan as your primary residence. So you can’t use a VA loan to buy a vacation home, rental property or second home.
There are some very limited exceptions to this but the rules are complicated, and you should probably seek advice from a mortgage professional who’s experienced in VA loans.
Stricter DTI Requirements
The other thing that sometimes prevents borrowers from qualifying for a mortgage is their debt-to-income (DTI) ratio. This is the percentage of your gross monthly income that goes to inescapable commitments, such as housing costs, existing debt payments, alimony, child support and so on. DTI does not include spending on things like food, gas, utilities and similar, which go up and down.
For a VA loan, a debt-to-income ratio of 41% or less is VA’s guideline, not a hard cap. Lenders can still approve a higher ratio when your residual income is strong, and many lenders set their own limits.
For once, the VA guideline is the more conservative side of a VA loan vs conventional comparison. Fannie Mae allows a DTI of up to 45% on manually underwritten conventional loans. Its automated underwriting system can approve ratios up to 50%.
Strict Property Requirements
The VA is much stricter than most lenders of conventional loans about the quality of the home you can buy. And it has a detailed rulebook (chapter 12 of its Lender’s Handbook) that covers everything from attics to zoning.
The VA calls these its Minimum Property Requirements. Any home you buy must either already comply with them or undergo repairs so that it complies before the VA guarantees the loan.
How does a conventional loan compare with a VA loan?
Most conventional loans are conforming loans, which means they meet the requirements for government-sponsored enterprises Freddie Mac or Fannie Mae to purchase them.
Conventional conforming loans generally:
- Often have higher mortgage rates than VA loans
- Require a minimum down payment of 3%
- Charge no mortgage insurance if your down payment is 20% or higher
- Let you ask to cancel mortgage insurance when your balance reaches 80% of the home’s original value (it ends automatically at 78%)
- Have a minimum credit score that each lender sets, though the higher your score the lower your rate will likely be
- Are open to all legal US residents regardless of military service
- Can finance any residential property, including investment and vacation homes
Most Americans with down payments of 20 percent or more find conventional loans are their best choice. Conventional loans do not come with an upfront funding fee, which can make up for their higher mortgage rates.
However, many eligible borrowers with lower credit scores and small savings start with a VA loan to become homeowners. They may then refinance into a conventional loan when their circumstances improve enough to qualify for one.
VA Loan vs Conventional Loan: Which is better?
Unless the VA’s debt-to-income ratio threshold, funding fee, occupancy requirements or strict property requirements trip you up, a VA mortgage loan is likely to be the best option for your home purchase.
Whichever you choose, be sure to get quotes from multiple lenders (the more the better) before committing yourself. As federal regulator the Consumer Financial Protection Bureau says:
“Shopping around for your mortgage has the potential to lead to real savings. It may not sound like much, but saving even a quarter of a point in interest on your mortgage saves you thousands of dollars over the life of your loan.”
