If you’ve earned VA loan eligibility, you have access to one of the most competitive mortgage products on the market: the option of $0 down payment, no private mortgage insurance (PMI), and rates that typically undercut conventional loan rates. For many VA-eligible buyers, it’s the stronger financial choice.

But there are scenarios where a conventional loan may be the better move. This article walks through those situations to help you choose the best home loan for you.

What makes the VA loan so competitive

A VA loan is a government-guaranteed mortgage backed by the U.S. Department of Veterans Affairs. Because the VA repays a portion of the lender’s loss if you default, lenders can offer favorable terms such as no down payment requirement.

What it means for eligible borrowers is generally no down payment requirement, no private mortgage insurance, and interest rates that tend to run lower than conventional rates.

“The zero down payment benefit can shorten the runway to homeownership in a meaningful way for Veterans, service members and their families,” says Chris Birk, vice president of mortgage insight at Veterans United Home Loans. 

He shares the example of a veteran looking at a $400,000 home. Saving for a 5% down payment means coming up with $20,000, and that doesn’t include additional homebuying costs and moving. “Saving for a down payment is typically the biggest hurdle to homebuying for many would-be buyers,” says Birk. With the down-payment hurdle removed, however, veterans can achieve homeownership sooner.

Pro tip: Being VA-eligible doesn’t mean you’re automatically VA-approved. Private lenders still set their own credit and income requirements on top of the VA’s baseline standards.

How VA and conventional loans compare

Down payment

With VA eligibility, you can buy with 0% down and no income limit. A low-down-payment conventional option, Fannie Mae’s HomeReady at 3% down, still means $13,500 down on a $450,000 purchase, plus having to pay private mortgage insurance (PMI) until you qualify to cancel it.

If you have savings but not a full 20% down, a VA loan lets that cash cover closing costs or stay liquid. On the down side, there is some risk to buying a home with no money down if you need to sell in the first few years.

The funding fee vs. PMI

The VA charges a one-time funding fee that’s 2.15% of the loan amount for first-time users at 0% down; it drops to 1.5% at 5% down and 1.25% at 10% or more.

Conventional loan PMI is a monthly charge of roughly 0.5% to 1.5% of the loan amount per year, about $188 to $563 a month on a $450,000 loan, and can last close to a decade on a 3%-down purchase.

On that same $450,000 home, the VA funding fee with 0% down would be a one-time $9,675. Compare that to 10 years of paying PMI of $300 per month, which would be $36,000. That’s a difference of more than $26,000 between the funding fee and PMI, with break-even around month 32. (Actual costs vary by lender and credit profile. Financing the funding fee adds interest costs.)

Borrowers with a qualifying service-connected disability are exempt from the funding fee entirely, as are some surviving spouses and active-duty Purple Heart recipients.

Interest rates and LLPAs

VA mortgage rates often run lower than conventional rates, though the spread shifts with market conditions.

That gap can partly reflect Loan Level Price Adjustments (LLPAs), pricing add-ons based on the borrower’s credit profile and/or down payment that apply to most conventional loans sold to Fannie Mae or Freddie Mac. 

As an example, a 680 FICO borrower at 5% down may face roughly 1.375 points, paid through upfront costs or a higher rate; VA loans carry no such surcharge. These adjustments generally increase as credit scores drop, so it’s worth comparing real quotes for your credit score and down payment.

Credit score and DTI

The VA sets no minimum credit score, though many lenders look for a FICO® Score of at least 580 to 620. For debt-to-income (DTI), VA underwriting uses a 41% benchmark, but may make exceptions to go higher if there are strong compensating factors.

VA underwriting also weighs residual income, the amount left over after monthly obligations based on family size and region, a requirement that conventional loans do not have. 

“A borrower with a higher DTI can still have money left over every month to cover food, transportation and the other realities of life,” says Birk. “VA underwriting has a process for recognizing that and it helps ensure the veterans can weather financial challenges and be in position to keep their homes.”

Many conventional lenders look for at least a 620 credit score, with DTI limits often reaching the mid-40% range depending on the lender and automated underwriting findings.

Property Requirements

VA loans are limited to primary residences, and the homes must meet the VA’s Minimum Property Requirements (MPRs): structural soundness, safe water and electrical systems, working heat, and a sound roof. Issues typically must be resolved before closing, which can complicate offers on older or distressed homes. With conventional loans, buyers may waive an appraisal contingency, but the home must still meet the lender’s property requirements.

When a Conventional Loan May Make More Sense

There are a few scenarios when a conventional loan is worth exploring instead of a VA loan. “Every borrower’s situation is unique,” says Birk. “There absolutely can be times when conventional financing makes more sense.” These include:

• If you have 20% saved and a credit score above 740. With those conditions, you’ll avoid PMI, and your conventional rate may be competitive with a VA rate.
• When you’re buying an investment property or second home. VA loans require primary occupancy, so an investment property or second home needs another type of financing regardless of your eligibility.
• You’re using your VA benefit again with little down. The funding fee jumps to 3.3% on a second 0%-down use, or $14,850 on a $450,000 purchase; if you plan to sell within four to five years, conventional PMI could cost less than that funding fee, depending on your PMI rate.
• If the prospective home would struggle to pass a VA appraisal. In competitive markets with older housing stock, a conventional loan may give you more flexibility to close and make minor repairs after the fact.

Even if you fit the above scenarios, Birk encourages veterans not to skip their VA benefit just because they’ve heard conventional financing is somehow more attractive to sellers or easier. “Buyers should find someone they trust to help them compare the rate, payment, upfront costs, cash to close and other key information,” he says. “The key is to weigh all your loan options side by side and make a decision based on a clear, comparative look at the numbers in light of your homeownership goals.” 

What Sellers Need to Know About VA Loan Offers

VA rules allow sellers to pay certain buyer closing costs, and seller concessions are generally capped at 4% of the property’s appraised value. That cap doesn’t apply to credits for the buyer’s closing costs.

And while VA loans have a reputation for taking longer to close, timing usually comes down to appraisal logistics and local market conditions more than the loan type itself.

“There’s nothing about a VA loan that automatically makes a buyer slow,” says Birk. What determines the timeline is the same with any mortgage: 

• Is the buyer prepared?
• Is the documentation in order? 
• How quickly does the appraisal come back? 
• Are there title or property issues that have to be resolved?

VA buyers can help speed up the process by removing some of the uncertainty. “Get preapproved and have a clear handle on your financing options before you start making offers,” says Birk. And most important: Work with people who understand VA loans to ensure that the seller and listing agent are getting accurate information about what the program actually requires.

“In a multiple-offer situation, sellers want confidence that the deal is going to close. A well-prepared VA buyer can provide that confidence,” says Birk. Sometimes, it may involve overcoming outdated assumptions about what a VA loan is and how it works, but a well-versed mortgage professional should be able to do that.

VA loan vs. conventional loan: Pros and cons

VA loan

Conventional loan

For most VA-eligible buyers, the math still favors the VA loan, particularly for those without 20% down saved. That said, do your due diligence and request quotes for both loan types from the same lender on the same day. Run the five-year total cost on each using your actual credit profile and the home in question, and let the numbers help inform your final decision.

Frequently asked questions

Why does Dave Ramsey caution against VA loans?

Dave Ramsey is a big believer in keeping debt as low as possible, so he discourages mortgages that allow buyers to put no money down, which includes VA loans. He also suggests the upfront VA funding fee and other loan terms could make it more costly than some other options.

Can I use a VA loan more than once?

Yes, eligible borrowers can use the VA loan benefit multiple times as long as they have remaining entitlement or qualify to restore previously used entitlement.

Is it easier to qualify for a VA loan?

Yes, in general, it can be easier to qualify for a VA loan thanks to its more flexible credit and down payment requirements. However, VA loan borrowers must meet VA eligibility requirements, and the property requirements could be more stringent than those for other loans.

Is there a benefit to putting money down on a VA loan?

Even though VA loans can be taken with no money down, if you are able to make a down payment, it may be worth doing. Some potential benefits include lowering the upfront funding fee, having some equity in the home, being a more attractive applicant, and lowering your monthly payments.