VA loan vs conventional loans: What's the right option?

The differences between VA loans and conventional loans can affect your home buying experience and finances by a lot. VA loan rates were .47% lower on average than conventional loans in 2024. This makes them an attractive option for eligible military personnel and veterans. Conventional loans just need at least 3% down, but VA loans offer up to 100% financing with no down payment required.

Homebuyers need to consider several things when choosing between these two mortgage types. Over 4,750,000 conventional loans were originated in 2024 compared to around 490,000 VA loans. VA loans come with lower interest rates and have more forgiving credit standards than conventional mortgages. The VA doesn't set a minimum credit score requirement, but conventional loans usually need at least 620.

Conventional loans need private mortgage insurance (PMI) with less than 20% down payment. VA loans, on the other hand, don't require any mortgage insurance, which saves borrowers thousands over the loan's life. Conventional loans have stricter financial requirements, but VA loans give 100-percent home financing to qualified veterans, active-duty servicemembers and surviving spouses.

This piece will get into the main differences between VA and conventional loans, their unique benefits, and help you pick the option that best fits your financial situation and homeownership goals.

VA loan vs. conventional loan

The right mortgage is a vital part of your home buying experience. Let's look at two popular options that buyers often think over: VA loans and conventional loans.

What is a VA loan?

VA loans help veterans, active-duty service members, and eligible surviving spouses buy homes. The Department of Veterans Affairs (VA) backs these mortgages. This benefit makes homeownership accessible to more people who have served our country.

Private lenders like banks and mortgage companies provide the actual loans. The VA guarantees part of the loan. This protection helps lenders offer better terms if you default.

VA loans stand out because they typically require no down payment. You'll just need to get a Certificate of Eligibility (COE) that shows you meet military service requirements. Most borrowers pay a one-time VA funding fee between 1.25% and 3.3% of the loan amount. Veterans who receive VA disability compensation don't pay this fee.

What is a conventional loan?

A conventional loan is a mortgage without U.S. government backing. Private mortgage lenders like banks, credit unions, and financial institutions handle everything about these loans. You can find conventional loans at almost every lender since they're the most common type.

Conventional loans come in two main types:

— Conforming loans: These follow Fannie Mae and Freddie Mac guidelines
— Non-conforming loans: These don't meet those standards and often include jumbo loans above Federal Housing Finance Agency limits

Conventional loans work well with different property types. Unlike VA loans that focus on primary homes, you can use conventional financing for vacation homes, rentals, and investment properties.

Your credit score should be at least 620 for most conventional loans. On top of that, you'll need a down payment of at least 3% for fixed-rate loans or 5% for adjustable-rate mortgages. Down payments below 20% require private mortgage insurance (PMI), which usually costs between 0.46% and 1.5% of the loan amount each year.

Take time to compare current mortgage rates and use a mortgage calculator to see your monthly payments for each option. You might also want to check out FHA vs conventional loans to understand all your choices better.

Differences between VA loans and conventional loans

VA loans and conventional loans have several key differences that can affect your homebuying journey and financial future.

Credit score

Most conventional loan lenders want a minimum credit score of 620. The average credit score for conventional borrowers in 2024 was 755. VA loans don't have an official minimum credit score requirement. Many lenders set their own minimum around 620. Veterans with less-than-perfect credit histories find VA loans more available.

Down payment

VA loans let you buy a home with zero down payment - that's their biggest advantage. Conventional loans need at least 3% down, and many lenders prefer 5-20%. You could save $6,000-$40,000 upfront with a VA loan on a $200,000 home.

Debt to income ratio

VA loans give you more room with debt-to-income (DTI) ratios. The VA suggests keeping DTI at 41% or lower. Borrowers with good credit scores or substantial savings often get exceptions. Conventional loan lenders usually want a DTI of 36% or lower. Some might go up to 43% or higher if you have other strong financial factors.

Mortgage insurance

VA loans never need private mortgage insurance. This saves you money. Conventional loans require PMI when you put less than 20% down. PMI costs between 0.3-1.15% of your loan amount each year. A VA loan on a $200,000 home saves you $600-$2,300 yearly in this regard.

Property eligibility

You can only use VA loans for primary residences. Conventional loans work for primary homes, vacation properties, rentals, and investments. VA loans focus on helping veterans buy homes they'll live in.

Fees

VA loans charge a funding fee instead of PMI. This fee ranges from 1.25% to 3.3% of your loan amount. First-time VA borrowers typically pay 2.15% with no down payment. Veterans getting disability compensation don't pay this fee. Conventional loans skip this fee but often have higher closing costs.

Loan limits

Veterans with full entitlement have no VA loan limits since 2020. County-based limits apply to those with reduced entitlement. Conventional loans always follow county-based conforming limits. Most counties cap single-family properties at $806,500 in 2025.

You should check current mortgage rates and use a mortgage calculator to compare your potential payments. Another option to consider is an FHA loan, which also has more lenient requirements than conventional loans.  

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Advantages of VA loans

Military members and veterans can access remarkable financial advantages through VA loans that make buying a home easier and more affordable. These benefits go way beyond what we covered before.

Veterans save money with VA mortgage loans. Interest rates run 0.25% to 0.42% lower than conventional loans. This advantage, combined with no private mortgage insurance requirement, saves veterans thousands of dollars each year compared to regular loans.

The VA loan benefit lasts a lifetime. Veterans can tap into their VA loan entitlement multiple times throughout their lives as long as they pay off previous VA loans or have remaining entitlement. Military families find this reusability makes VA loans a powerful long-term financial tool.

The VA program protects borrowers who face money troubles. Veterans get financial counseling to avoid foreclosure during tough times. Regular loans rarely offer this kind of safety net.

Lenders face strict caps on closing costs. Sellers can cover all VA loan-related closing costs plus up to 4% of the loan amount in concessions. These rules help military borrowers spend less during the homebuying process.

Veterans with service-connected disabilities get even better deals. They don't pay the VA funding fee at all, which saves thousands right from the start.

Here's a surprising fact: only about 6% of the 21+ million U.S. veterans used a VA home loan in the last five years. Many eligible veterans might not know about all the great benefits the VA loan program offers.

Benefits of conventional mortgages

Census data reveals that 73% of new single-family homes sold in 2023 used conventional mortgages. These loans remain the top choice for most homebuyers because they offer several advantages over government-backed options.

Conventional loans give buyers more freedom with property types. You can use them to buy vacation homes, rental properties, and investment properties. This makes them the only real choice for anyone looking to buy a second home or start investing in real estate. Unlike VA loans that limit purchases to primary residences only.

There's another reason these loans stand out - you can eventually drop private mortgage insurance (PMI). Your PMI automatically disappears once you build 20% equity in your home. 

Buyers can get conventional loans much faster than government-backed options. These loans need less paperwork and have simpler underwriting rules than FHA or VA loans, which helps speed up the financing process.

You'll find more flexibility with conventional loan terms beyond the usual 15 or 30-year options. Lenders now offer terms from 8 to 30 years, so you can pick a repayment schedule that matches your financial goals.

Buyers with strong credit scores often get better interest rates with conventional loans. On top of that, sellers tend to prefer conventional loan offers in competitive markets because they come with fewer property requirements and usually close faster.

Is a VA loan better than a conventional loan?

The choice between a VA loan and a conventional loan depends on your financial situation and goals as a homeowner.

VA loans give eligible military members better benefits. You might find VA loans more appealing if you don't have much saved for a down payment or carry more debt. The option to finance your entire home's value without needing private mortgage insurance saves you money compared to conventional loans.

Here's a real-life example: A veteran with $6,000 in savings wants to buy a $500,000 home. The VA loan lets them move forward without any down payment. The same applies if your credit score is under 620 - a VA loan would be your best choice.

Conventional loans work better in some cases. We found that with a 20% down payment, you avoid both PMI and the VA funding fee. You'll need conventional financing for second homes or investment properties because VA loans have strict occupancy rules.

FAQs

These are common questions people ask about choosing between VA loans and conventional mortgages.

Is it easier to get approved for a VA loan?

The answer is usually yes. VA loans come with more relaxed qualification criteria than conventional loans. The Department of Veterans Affairs doesn't set minimum credit score requirements. Lenders create their own minimum scores. Most conventional loans need a score of at least 620. Many first-time homebuyers find VA loan qualifications more available.

What type of loan do sellers prefer?

Most sellers lean toward contracts with conventional financing. VA appraisal requirements play a big role in this choice. Conventional appraisals list properties as-is. VA appraisals might need extra loan requirements that make deals more complex. All the same, VA mortgage borrowers can team up with real estate agents to make their offers more attractive.

Does it take less time to close a conventional loan?

In stark comparison to what many believe, VA loans close almost as quickly. Recent data shows conventional purchase loans closed just three days faster than VA loans over two years. VA loans usually close within 40-50 days - right in line with normal mortgage timelines. These loans also have a better chance of making it to closing day than other options. This gives both buyers and sellers more confidence.

Conclusion

Your unique financial situation and homeownership goals will help you decide between VA and conventional loans. You need to know the main differences to make a smart choice.

VA loans are the best deal for eligible military personnel. These loans need no down payment and skip the private mortgage insurance requirement. They come with lower interest rates and more relaxed credit score requirements, which makes them perfect for veterans who haven't saved much or have a few credit hiccups.

Conventional loans work great for people buying investment properties, second homes, or those who can make bigger down payments. Putting 20% down helps borrowers avoid PMI, which could make conventional loans cheaper over time despite the higher interest rates.

Some people think VA loans slow down closing deals. The data tells a different story - VA loans take just a bit longer to close and actually succeed more often than conventional ones. Military buyers can feel confident using VA loan options in competitive markets.

Both loans have their sweet spots depending on your situation. Military service members should take advantage of their VA benefits, while investors or people with healthy savings might prefer conventional loans. The right mortgage should line up with your current finances and future homeownership plans.

At Better, we combine technology with top-tier service to make home buying faster, more affordable, and easier to understand—whether you're going VA or conventional. We offer consistently competitive rates, zero hidden fees, and 24/7 support so veterans, active-duty members, and everyday homeowners alike can secure the best loan for their unique needs. Plus, our streamlined digital process means less paperwork and faster closings.

...in as little as 3 minutes – no credit impact