Purchasing a home is one of the most significant financial decisions you will ever make, and the choice of a mortgage product is critical to building long-term wealth. At Adventure Lending, we assist in aligning homebuyers’ choices with specific financial goals and military service experience. To decide which loan is better between a VA loan vs conventional loan, you should consider your military status, down payment, credit profile, and long-term financial plans.
This is a step-by-step explanation of both types of mortgages, their advantages, and the criteria they employ to help you select which route you should take when you get a mortgage.
Understanding the Fundamentals: VA loan vs conventional loan
What is a VA Loan?
A VA loan is a government-approved mortgage that is backed by the U.S. Department of Veterans Affairs. This program was created with the mission of closing the gap on homeownership for active-duty service members, veterans, and surviving spouses and is designed to eliminate down payment and private mortgage insurance.
What is A Conventional Loan?
A conventional loan is a home loan that is not insured or guaranteed by a government agency. But these loans are usually guided by Fannie Mae/Freddie Mac guidelines. Conventional mortgages are offered to any borrower who is eligible to apply and have flexible structures that can be used for a primary residence, second home, and investment home.
Key Differences: VA Loan vs. Conventional Loan
| Feature | VA Loan | Conventional Loan |
| Minimum Down Payment | 0% | 3% for first-time buyers (5% standard) |
| Mortgage Insurance | None (Funding fee applies) | PMI required if down payment is under 20% |
| Minimum Credit Score | Typically 580–620 (Lender dependent) | Typically 620+ |
| Occupancy Type | Primary residence only | Primary, second home, or investment |
| Loan Limits | No limit for full entitlement | Conforming loan limits apply |
VA Home Loan Benefits
Government support offers unique financial benefits to eligible service members:
- No Money Down: Get 100% financing without saving a mint of change in advance.
- Unlike conventional loans that require mortgage insurance payments each month if you have less than 20% down, VA loans don’t require monthly mortgage insurance payments.
- Favored Terms: Government support lends lenders less risk, and this is generally reflected in the average interest rate of the product being lower than the conventional product.
- Flexible credit limits: VA credit guidelines allow for greater allowances of past credit problems or higher debt-to-income (DTI) ratios.
- The VA restricts lenders from charging military borrowers certain closing costs and fees.
Note: Most VA borrowers pay one-time VA funding fee (1.25% – 3.3% depends on usage and down payment – Veterans with service connected disability compensation are exempt from this fee).
Conventional Mortgage Comparison
Though VA loans have significant advantages, conventional mortgages can be flexible enough for a variety of financing situations:
- Property type versatility: Purchase vacation homes, multi-unit investment properties, and non-occupant co-borrower homes with conventional financing.
- With no funding fee: If a buyer puts down 20%, they will not have to pay monthly PMI or one-time funding fees.
- Cancellation of PMI: Monthly PMI payments stop when you have 20% equity in your home or you request it.
- No VA Entitlement Limitations: Conventional loans have no effect on VA entitlement limits, preserving military home loan benefits for future primary home buyers.
Which loan path is the correct one for you?
Consider using a VA Loan if:
- You are eligible for a VA loan because of being on active duty, a veteran or a guard or reserve service member.
- You are looking to save money and earn your first home with no down payment.
- You want to reduce monthly out-of-pocket expenses to avoid repeating PMI.
A conventional loan is best for you if:
1. You are not affiliated with the military.
2. You are buying a second home, vacation home, or rental home.
3. You have a 20% or more down payment and do not want to pay any up-front funding fees.
4. Your credit score is very good (740+), and you wish to avail of conventional pricing conditions.
At Adventure Lending, we give you the option to do the calculations of both, and our loan officers show you side-by-side monthly payment breakdowns.
Frequently Asked Questions
So what’s the main VA loan eligibility requirement?
The minimum service requirement for VA loan eligibility is 90 consecutive days of active wartime service, 181 days during peacetime, or 6 years in the National Guard or Reserves. There is also a Certificate of Eligibility (COE) that needs to be obtained.
Is it possible to obtain more than one VA loan?
Yes. Entitlement is a benefit that can be used more than once in a VA loan. If a person has paid off an old VA loan and sells the property, their entire entitlement will be restored. Partial entitlement is also possible for those who are purchasing two homes with a VA loan under certain circumstances.
A VA loan isn’t the best option in every situation.
Generally, the monthly savings for eligible military borrowers who are buying a primary residence and are putting less than 20% down is almost always greater with a VA loan. If you have a 20% down payment and you don’t want to pay the VA’s upfront funding fee, however, then a conventional loan might be a better choice, as it could end up costing you less in the end.
How would credit score affect the loan application for both options?
A conventional loan is very dependent on FICO scores for the rate and premiums for the PMI. Individual lenders have minimum credit score requirements (usually 580 to 620), but unlike in other situations, the credit score is not a factor that drives up monthly insurance charges with VA loans.
Can VA loans take longer to close compared to conventional loans?
Yes, VA loans can be slower to close than conventional loans. No. Processing times are in line with today’s mortgage processing. An experienced lender will keep appraisal schedules and underwriting reviews on track and efficient.