A VA loan usually costs less for eligible first-time buyers with a small down payment.
It allows 0% down with full entitlement, has no monthly mortgage insurance, and replaces PMI with a one-time funding fee: 2.15% on first use with less than 5% down, waived for many veterans with a service-connected disability.
A conventional loan requires at least 3% down and PMI below 20% down, but it can still cost less, especially if you put 20% down, have strong credit, are not exempt from the funding fee, or plan to sell within a few years.
Conventional is also usually the better fit when you need a non-veteran co-borrower or are buying a second home or investment property. Pricing both loans side by side is the clearest way to decide.
What is the difference between a conventional loan and a VA loan?
A VA loan is guaranteed by the U.S. Department of Veterans Affairs and is an earned benefit for eligible service members, veterans, and certain surviving spouses. A conventional loan has no government backing; most follow rules set by Fannie Mae or Freddie Mac. Private lenders make both loans.
The VA guarantee is what allows 0% down and no monthly mortgage insurance. Conventional lenders offset their risk with private mortgage insurance (PMI) when a buyer puts less than 20% down. That trade-off, a one-time VA funding fee against ongoing PMI, drives most of the cost comparison. Learn more about first-time buyer loan options.
Who can use a VA loan versus a conventional loan?
Conventional loans are open to any borrower who meets credit, income, and property guidelines, while VA loans require military service eligibility confirmed by a Certificate of Eligibility (COE), a VA document that shows a lender what you qualify for. Groups that can generally use a VA loan include:
- Veterans who meet minimum service requirements and have a qualifying discharge
- Active-duty service members, generally after 90 continuous days of service
- National Guard and Reserve members who meet service requirements
- Certain surviving spouses of service members or veterans
Conventional loans also allow any co-borrower, such as a partner, friend, or relative who is not a veteran. VA loans work well for a veteran buying alone or with a spouse; a non-spouse, non-veteran co-borrower usually requires a down payment on that person’s share.
How do VA and conventional down payment requirements compare?
VA requires less cash upfront: eligible borrowers with full entitlement can buy with 0% down, while conventional loans require at least 3% down for qualifying first-time buyers and 5% for most other buyers. Entitlement is the amount the VA will guarantee on your behalf; first-time VA users typically have full entitlement.
On a $350,000 purchase, the minimums compare as follows. These figures are for illustration only and are not an offer of credit.
- VA with full entitlement: $0 down
- Conventional at 3% down: $10,500
- Conventional at 20% down, no PMI: $70,000
Loan limits differ too. Borrowers with full VA entitlement have no VA loan limit, although lenders set their own maximums and you must qualify for the payment. According to the Federal Housing Finance Agency (FHFA), the 2026 baseline conforming limit for conventional loans is $832,750, with higher limits in high-cost areas.
How does the VA funding fee compare with PMI?
The VA funding fee is a one-time charge, while conventional PMI is a monthly cost that lasts until you build enough equity. For first-time VA use on a purchase, the funding fee is 2.15% of the loan amount with less than 5% down, 1.5% with 5% or more down, and 1.25% with 10% or more down. Subsequent use with less than 5% down costs 3.3%. The fee can be financed into the loan.
Conventional PMI is priced by credit score and loan-to-value ratio (LTV), which is your loan balance divided by the home’s value. It applies only when you put less than 20% down.
Borrowers can request PMI cancellation once the balance reaches 80% of the home’s original value, and PMI ends automatically at 78% if payments are current.
Down payment changes the comparison:
- Small down payment: VA usually costs less, because the one-time funding fee is typically smaller over time than years of monthly PMI.
- 20% down: A conventional loan has no PMI and no upfront insurance fee, while a non-exempt VA borrower still pays a 1.25% funding fee.
- Funding fee exempt: VA avoids both the fee and monthly mortgage insurance at any down payment.
Veterans who receive VA compensation for a service-connected disability are exempt from the funding fee, along with certain surviving spouses and active-duty members who received a Purple Heart. Your COE shows whether you are exempt.
“Veterans with 20% saved are the ones who should run both numbers. Conventional has no mortgage insurance at 20% down, so the question becomes whether the VA rate saves enough to cover the funding fee. Sometimes it does and sometimes it does not.”
— Charlie Cooper, President, Austin Capital Mortgage
How do VA and conventional credit and income rules compare?
VA is generally more flexible on credit history than conventional. The VA does not set a minimum credit score, and many lenders set VA minimums in roughly the 580 to 620 range.
Conventional loans no longer carry a hard 620 floor in Fannie Mae’s automated system, but many lenders still require 620 through overlays, and conventional pricing and PMI rise noticeably at lower scores.
Income rules differ in approach. Conventional loans rely on debt-to-income ratio (DTI), your total monthly debts divided by gross monthly income, and Fannie Mae’s automated system can approve up to 50%. VA uses a 41% DTI benchmark plus residual income, which is the money left each month after your mortgage, debts, taxes, and estimated living costs. Strong residual income can allow a VA DTI above 41%, subject to underwriting review.
How do waiting periods after bankruptcy or foreclosure compare?
VA generally allows a new loan two years after a Chapter 7 bankruptcy discharge or a foreclosure. Fannie Mae generally requires four years after a Chapter 7 discharge and seven years after a foreclosure, with shorter periods possible for documented extenuating circumstances. For buyers rebuilding after a major credit event, VA is often available years sooner.
How do VA and conventional appraisals and property rules compare?
VA appraisals are ordered through the VA and check the home against minimum property requirements for safety, soundness, and sanitation, while conventional appraisals focus mainly on value and marketability. Some conventional purchases qualify for an appraisal waiver, where the lender accepts the value without a full appraisal.
VA also has a process called the Tidewater Initiative, which gives the lender and buyer a chance to provide more sales data if the appraiser expects the value to come in below the contract price. Other property differences include:
- Occupancy: VA loans are for primary residences only. Conventional loans also allow second homes and investment properties.
- Seller concessions: VA caps seller concessions at 4% of the home’s value, with normal closing costs allowed on top of that cap. Conventional allows 3% with less than 10% down, 6% with 10% to less than 25% down, and 9% with 25% or more down.
- Condos: VA keeps its own list of approved condo projects, and conventional loans use their own project review.
- Assumability: VA loans can be assumed by a qualified buyer, which can be valuable if rates rise. Most conventional loans cannot be assumed.
For a related comparison, see FHA vs VA loans for first-time homebuyers.
How does VA entitlement affect the choice?
Using a VA loan does not use up the benefit forever. Entitlement is generally restored when you sell the home and pay off the VA loan. If you keep the first home, for example as a rental after meeting the occupancy requirement, you may still have remaining entitlement for a second VA loan, though a down payment may be required depending on the price and your remaining entitlement.
The main cost of reusing the benefit is a higher funding fee: subsequent use with less than 5% down costs 3.3% instead of 2.15%, unless you are exempt. That is worth factoring in, but it rarely outweighs the savings of using VA on a first purchase with a small down payment.
How do conventional and VA loans compare, and when does each make more sense?
Conventional and VA loans differ most on eligibility, down payment, mortgage insurance, and credit flexibility.
A VA loan usually makes more sense for eligible buyers with small down payments. A conventional loan can make more sense for buyers with 20% down, strong credit, or needs that VA does not cover.
The table below summarizes typical program guidelines as of 2026 and shows which loan may fit each situation. Lender requirements vary, and the right answer still depends on the full file.
| Factor | Conventional loan | VA loan | Which may fit better |
|---|---|---|---|
| Who can use it | Any qualified borrower | Eligible service members, veterans, and certain surviving spouses | Conventional if you are buying with a co-borrower who is not your spouse and not a veteran |
| Minimum down payment | 3% for qualifying first-time buyers; 5% standard | 0% with full entitlement | VA if you have little saved and want to keep savings for reserves |
| Credit score | No hard floor in Fannie Mae DU; many lenders require 620+ | No VA minimum; lenders commonly set their own | VA if your score is below the low 700s, where conventional pricing and PMI rise |
| Upfront cost | None for mortgage insurance | Funding fee of 2.15% first use with under 5% down; 1.25% with 10%+ down; exempt for many borrowers | VA if you are exempt from the funding fee; conventional if you put 20% down, have strong credit, and are not exempt |
| Monthly mortgage insurance | PMI under 20% down; cancellable at 80% of original value, automatic at 78% | None | VA if you are putting less than 20% down |
| Income test | DTI up to 50% with Fannie Mae automated approval | 41% DTI benchmark plus residual income | Depends on your full debt and income picture |
| Bankruptcy / foreclosure waiting | 4 years / 7 years | 2 years / 2 years | VA if you had a bankruptcy or foreclosure within the past four to seven years |
| Appraisal | Value and marketability; appraisal waiver possible | VA-assigned appraiser; minimum property requirements | Depends on the property’s condition |
| Occupancy | Primary, second home, or investment | Primary residence only | Conventional if you are buying a second home or investment property |
| 2026 loan limit | $832,750 baseline; higher in high-cost areas | No VA limit with full entitlement | Depends on price and location |
| Seller concessions | 3%, 6%, or 9% depending on down payment | 4% of value, plus normal closing costs | Conventional if you need concessions above 4% and are putting 10% or more down |
| Assumable | Generally no | Yes, with a qualified buyer | VA if you want a loan a future buyer could take over |
For a related comparison, see FHA vs conventional loans for first-time homebuyers.
“The VA benefit is one of the best tools a first-time buyer can have, but it is not automatic. The veteran’s down payment, credit, and plans for the house decide which loan comes out ahead.”
— Charlie Cooper, President, Austin Capital Mortgage
Why This Veteran Chose Conventional Financing
A Navy veteran came to Austin Capital Mortgage as a first-time buyer with a 770 credit score, 20% saved, and a target price near $400,000. He had no disability rating, so he was not exempt from the funding fee, and he planned to relocate for work in about five years.
His loan officer priced three options: VA with 0% down, VA with 20% down, and conventional with 20% down. The conventional loan had no PMI and no upfront fee. The VA loan with 20% down still carried a 1.25% funding fee, and its lower rate quote would not have offset that fee within the five years he expected to own the home. He chose the conventional loan and kept his full VA entitlement for a future purchase.
A veteran with 20% down and strong credit may find a conventional loan costs less than a VA loan when he is not exempt from the funding fee and expects to sell within a few years.
Case study attributed to Charlie Cooper, President, Austin Capital Mortgage. Borrower details are fictionalized.
Your Next Steps
- Request your Certificate of Eligibility (COE) and check for a funding fee exemption
- Pull your credit scores and note the middle score
- Decide how much of your savings you want to put down versus keep in reserve
- Estimate how long you expect to own the home
- Confirm who will be on the loan, and whether that person is your spouse or a veteran
- Ask a loan officer to price VA and conventional side by side at more than one down payment
Ready to move forward? A loan officer can review your full scenario and show you both options in one conversation.
Not Sure Which Loan Fits Your File?
Austin Capital Mortgage can price your file across VA and conventional programs through access to 100+ lenders, with a dedicated loan officer from start to finish. Pre-approval can be completed in as little as 24 hours with no credit impact.
Austin Capital Mortgage works with 100+ lenders, a hybrid banker and broker model, which means more program access and more flexibility to find the path that fits the borrower’s actual file.
Approval is subject to underwriting review and program eligibility. Rates and payments vary. Austin Capital Mortgage is a DBA of Aspire Home Loans, LLC, NMLS #1955132. Equal Housing Lender.
