VA Loan vs Conventional: which one if you qualify?
If you're a veteran, active military, or surviving spouse, the VA loan almost always beats conventional on lifetime cost. The exceptions are narrow — investment property, second home, or unique credit profiles. Here's the head-to-head.
| Feature | VA Loan | Conventional |
|---|---|---|
| Minimum down payment | 0% (true zero down for full entitlement) | 3% (first-time buyer programs); 5% otherwise |
| Eligibility | Veterans, active duty, surviving spouses, qualifying Reserve/National Guard | Open to all qualifying borrowers |
| Mortgage insurance | None — VA never requires PMI | PMI required when LTV > 80%; auto-removes at 78% |
| Upfront fee | 1.25–3.3% funding fee (rolled in; waived for disability) | None (no funding fee) |
| Min credit score | VA has no minimum; lenders typically 580–620 | 620 typical; 740+ for best rates |
| Max DTI ratio | 41% target — exceptions with strong residual income | 45% standard; 50% with strong reserves |
| Loan limits (2025) | No limit for full-entitlement borrowers | $806,500 baseline; $1,209,750 high-cost areas |
| Property condition | VA appraisal includes Minimum Property Requirements (MPRs) | Standard appraisal |
| Occupancy | Owner-occupied (primary residence) only | Owner-occupied OR investment OR second home |
| Best for | Almost always wins for eligible veterans | Investment property, second home, jumbo loans |
Why VA usually wins for veterans
For an eligible veteran buying a primary residence, VA beats conventional on:
- Down payment. 0% vs 5–20%. On a $500K home, VA frees up $25K–$100K of cash.
- Monthly mortgage insurance. $0 forever vs PMI when down payment is under 20% (typically $100–$200/mo until LTV hits 78%).
- Loan limits. Full-entitlement VA borrowers can borrow above the conventional ceiling ($806K) without putting 25% down on the excess.
- Closing costs. Sellers can pay up to 4% of the loan amount in concessions (paying your closing costs). Most competitive markets allow this.
- No prepayment penalty ever. By law.
When conventional beats VA
Pick conventional even if you're VA-eligible if:
- You're buying an investment property. VA is owner-occupied only. Conventional supports investment from day one.
- You're buying a second home or vacation property. Same — VA is primary residence only.
- The property fails VA MPRs. Older homes, fixer-uppers, or properties needing significant repair. Conventional appraisal is less strict.
- You can put 20%+ down AND have 740+ FICO. On a jumbo amount, conventional with 25%+ down can sometimes beat VA on total cost — VA funding fee at 2.15% on a $1M loan is $21,500 you don't recoup. Run both calculators.
- You've burned VA entitlement. If you have a previous VA loan still outstanding, your remaining entitlement may not cover a new full-amount loan. Partial entitlement still works but with more rules.
The funding fee math
VA charges a one-time funding fee (rolled into the loan) instead of monthly insurance. 2025 schedule for purchase loans:
- First use, <5% down: 2.15% of loan amount
- First use, 5%+ down: 1.50%
- First use, 10%+ down: 1.25%
- Subsequent use, <5% down: 3.30%
- Disabled veteran (10%+ rating): 0% — fee waived entirely
Conventional has no funding fee — but it does have PMI for 5–10 years if you put under 20% down. The one-time VA fee usually beats multi-year PMI on lifetime cost.
The 30-year cost difference
For a $500,000 home, 30-year fixed at typical 2025 rates, first-use VA borrower (no disability waiver):
- VA (0% down, 2.15% funding fee rolled in): ~$3,400/mo PITI. Total over 30 years ≈ $1.22M. No PMI ever.
- Conventional (5% down, PMI until year 11): ~$3,450/mo PITI initially, drops to ~$3,300 once PMI cancels. Total over 30 years ≈ $1.20M. But required $25K cash down.
Conventional looks slightly cheaper on lifetime cost only because of the down payment opportunity cost. If you can't actually invest the $25K at 7%+ return, VA wins. With a disability waiver, VA wins by $30K+ regardless.
Run the numbers on your scenario
- VA Loan Calculator — payment with funding fee, first-use vs subsequent, disability waiver.
- Mortgage Calculator — conventional payment with PMI auto-removal at 78% LTV.
- DTI Calculator — confirm you qualify under both.
- Home Affordability Calculator — see your max home price under each program.
Quick decision tree
- VA-eligible, primary residence, full entitlement? → VA
- Service-connected disability rating (any %)? → VA (funding fee waived)
- Buying an investment property or second home? → Conventional
- Property won't pass VA MPRs? → Conventional
- Can put 20%+ down with 740+ FICO? → Run both calculators; jumbo math may favor conventional