VA Loans vs. Conventional Loans

When you buy a home, there are several types of mortgage loans you can choose from. Two of the more common options include the conventional loan and the VA loan.

What’s the difference between these two home loans, and which one should you choose? This guide will break it down.

Table of contents:

• What is a VA loan?
• What is a conventional loan?
• What is the difference between a VA loan and a conventional loan?
• Similarities between VA loans and conventional loans
• Which option is best for you?
• VA Loan vs. Conventional Loans FAQs
• Summary of our guide to VA loans vs. conventional loans

What is a VA loan?

A VA loan is a mortgage that is guaranteed by the U.S. Department of Veterans Affairs. This means the department sets the basic requirements for these loans, and as long as a loan adheres to those guidelines, the VA will step in and repay the lender if a borrower fails to make payments.

VA loans are only open to military and veteran homebuyers and, many times, their surviving spouses. General consumers cannot obtain a VA loan to buy a home.

Who’s eligible?

VA loan eligibility depends on the length and dates of service, as well as the type of discharge the service member received.

See below for the VA’s specific service requirements.

MILITARY SERVICE PERIOD	ACTIVE SERVICE REQUIREMENT
Aug. 2, 1990 – present	24 continuous months The full period you were called to active duty (at least 90 days) 90 days if you were discharged due to hardship or a reduction in force < 90 days if you were discharged due to a service-related disability
Sept. 8, 1980 – Aug. 1, 1990	24 continuous months The full period you were called to active duty (at least 181 days) 181 days if you were discharged due to hardship or a reduction in force < 181 days if you were discharged due to a service-related disability
Oct. 17, 1981 – Aug. 1, 1990 (officer)	24 continuous months The full period you were called to active duty (at least 181 days) 181 days if you were discharged due to hardship or a reduction in force < 181 days if you were discharged due to a service-related disability
May 8, 1975 – Sept. 7, 1980 May 8, 1975 – Oct. 16, 1981 (officer) Feb. 1, 1955 – Aug. 4, 1964 July 16, 1947 – June 26, 1950	181 continuous days < 181 days if you were discharged due to a service-related disability
Aug. 5, 1964 – May 7, 1975 Nov. 1, 1955 – May 7, 1975 (in Vietnam) June 27, 1950 – Jan. 31, 1955 Sept. 16, 1940 – July 25, 1947	90 continuous days < 90 days if you were discharged due to a service-related disability

National Guard members, Reserve members and surviving military spouses may also qualify in some cases. To see the full list of eligibility requirements for these borrowers, visit VA.gov.

What is a conventional loan?

Conventional mortgage loans are issued by private mortgage lenders. They’re not backed by any government entity, making them riskier — and therefore harder to qualify for — than many government options (like VA or FHA loans, for example). Despite this, conventional loans are the most common type of mortgage.

Such loans can be either conforming or non-conforming. Conforming loans must adhere to the standards set out by Fannie Mae and Freddie Mac, which dictate minimum credit scores, maximum loan amounts and more. Non-conforming loans don’t have to adhere to these guidelines, giving lenders more flexibility in who they lend to and what requirements those borrowers must meet.

Who’s eligible?

Anyone can apply for a conventional mortgage loan. Unlike VA loans, you don’t have to hold a certain job to qualify. You will, however, need to meet the requirements set out by your lender. These might include a certain credit score (conforming conventional loans will generally require one of at least 620), a maximum debt-to-income ratio and a minimum down payment.

What is the difference between a VA loan and a conventional loan?

VA loans and conventional loans are different in many ways — namely in their eligibility standards, fees and down payment requirements. See below for a look at the major differences between a conventional loan vs. a VA loan.

VA vs. conventional loan eligibility requirements

Requirements	VA loan	Conventional loan (conforming)
Eligibility	Must be a military member, veteran or surviving spouse of one	Anyone can apply
Minimum down payment	Zero	3% of the purchase price
Minimum credit score	No VA-established minimum, but most lenders require one of between 580 and 620	Usually 620, though some lenders may go lower
Fees	0.5% to 3.6% funding fee, which can be paid at closing or financed into your loan balance Origination, appraisal and recording fees Discount points Credit report fees Home insurance and taxes	Origination, appraisal and recording fees Discount points Credit report fees Home insurance and taxes
Mortgage insurance	None	Requires private mortgage insurance (PMI) for down payments under 20%
Limits	No loan limits, though the amount you can borrow depends on your credit profile, DTI and VA entitlement	$647,200 to $970,800, depending on the market Non-conforming loans have no limit
DTI	Up to 41%	Up to 50%

VA loans don’t require a down payment

Perhaps the biggest difference between a conventional vs. VA loan is that you won’t need a down payment on a VA mortgage. This can mean significant savings upfront.

For example: If you were buying a $500,000 home with a conventional loan, you’d need at least a $15,000 down payment (3%). On a VA loan, though, you’d need zero.

Conventional loans don’t have government backing

VA loans come with a guarantee from the Department of Veterans Affairs — meaning the VA will repay the lender if a borrower defaults on their loan. Because of this protection (and its lowered risk), VA loan lenders are able to offer very favorable loan terms. There’s no down payment, interest rates are low and there is no mortgage-insurance requirement.

On the flip side, though, these arrangements also mean more red tape. This can sometimes mean a slightly slower closing process when compared to conventional loans.

Funding fees vs. mortgage insurance

Most conventional loans require private mortgage insurance if you make a down payment of less than 20%. While VA loans don’t technically require PMI, they do have a funding fee, which helps to support the VA loan program.

PMI usually costs up to 2% of your loan amount annually. The VA funding fee is a one-time fee that ranges from 0.5% to 3.6% of your loan amount. You can pay it at closing or roll it into your loan balance.

VA loans have no limits

Technically, VA loans have no ceiling. So, as long as your income and debt-to-income ratio can qualify you for the loan, there’s no limit to what you can borrow. Your VA loan entitlement also plays a role in what lenders can loan you — at least without a down payment.

Conforming conventional loans, on the other hand, have maximum loan amounts. These vary depending on how costly your housing market is but range between $647,200 and $970,800 for 2022. Non-conforming conventional loans, often called jumbo loans, can go higher.

VA loans typically have lower interest rates

One of the biggest benefits of a VA loan compared with a conventional mortgage is its lower rates. Because VA loans present less risk, lenders can offer better interest rates than they can on other loan products. Generally speaking, VA loan rates tend to be about 0.25 points lower (or more) than conventional rates.

Similarities between VA loans vs. conventional loans

Conventional and VA mortgages aren’t completely discrete from one another. For one, both loan types demand a look at your credit score, debt-to-income ratio and other financial details to determine how much you can borrow.

They also both come with similar credit score requirements, and they have fixed interest rates, too  — meaning your rate and monthly payments will remain the same for the entire loan term. (Variable rate mortgages have rates that fluctuate over time.)Finally, both VA and conventional loans offer lengthy terms. You can get a VA home loan or conventional mortgage of up to 30 years long.

Which option is best for you?

When choosing between a conventional loan and a VA loan, the right choice will depend on your unique financial situation and your qualifications. If you’re not a military member, veteran or surviving spouse of one, then a conventional or other mortgage is your only choice. If you qualify for both, though, use the below guidance to point you in the right direction.

When is a VA loan the better option?

If you qualify for a VA loan and don’t have much saved up for a down payment, this veterans-only loan is likely your best bet. Only one other major loan program requires zero down payment, and that’s the USDA loan, which requires you to buy in a rural area.

A VA loan may also be a better choice if you want the lowest interest rate. Just keep in mind: If you don’t make a down payment, your loan balance will be larger, and so lead to higher interest costs over the long run. It’s important to do the long-term math when determining which loan option is best.

When is a conventional loan the better option?

A conventional loan may be best if you have a higher debt-to-income ratio, as these allow up to a 50% DTI (at least on conforming loans). VA loans, on the other hand, require that you be carrying a lesser debt burden  – a 41% DTI.

You also might choose a conventional loan if you’re eyeing a vacation home or investment property. VA loans can only be used for the primary residence you intend to live in.

Finally, if you have amassed a sizable down payment (of 20% or more), a conventional loan is probably best. This option would allow you to avoid both PMI and the VA’s funding fee (and save a good amount of cash in the long run).

Summary of our guide to VA loans vs. conventional loans

Both VA loans and conventional loans can help you buy a home. Which option is best for you depends on your record of military service, your finances and other factors. If you’re not sure which type of loan would serve your goals best, talk to a local loan officer or mortgage broker who can walk you through your options.