On a $400,000 purchase, a qualified VA buyer putting 0% down finances $400,000 before the funding fee. A conventional buyer putting 5% down finances $380,000, but may also pay monthly mortgage insurance. Using a simple illustration of 6.50% for the VA loan and 6.75% for the conventional loan, the VA principal-and-interest payment is about $2,528 per month. The conventional principal-and-interest payment is about $2,465, but adding an estimated $190 monthly mortgage insurance payment brings it to about $2,655. That is a $127 monthly difference, or $7,620 over five years, before taxes, insurance, rate changes, and the VA funding fee are considered.
That is why VA versus conventional loans is not a simple question of which program advertises the lower rate. The right answer depends on eligibility, cash available for closing, property plans, credit profile, and how long you expect to keep the loan.
Duane Buziak, NMLS #1110647
Table of Contents
- VA and conventional loan basics
- Down payment, mortgage insurance, and fees
- Credit, debt, income, and reserves
- When a conventional loan can be the stronger choice
- How a broker comparison changes the decision
- Frequently asked questions
VA versus conventional loans at a glance
A VA mortgage is available to eligible veterans, active-duty service members, certain surviving spouses, and other qualifying borrowers with a valid Certificate of Eligibility. It can provide 100% financing on an owner-occupied primary residence, does not require monthly mortgage insurance, and often has competitive pricing.
A conventional mortgage is not backed by the VA. It offers more flexibility for buyers who are not VA-eligible, buyers purchasing a second home or investment property, and borrowers who want to avoid the VA funding fee. Conventional financing may allow a down payment as low as 3% for eligible owner-occupant buyers, although requirements vary by program and borrower profile.
Neither option is automatically cheaper. A VA loan can be compelling when preserving cash matters and mortgage insurance would be expensive. A conventional loan can be compelling when a buyer has strong credit, enough funds for a meaningful down payment, and a loan scenario where the funding fee outweighs the value of zero-down financing.
The costs that change the monthly payment
VA funding fee versus conventional mortgage insurance
Most VA purchase loans include a one-time funding fee unless the borrower qualifies for an exemption, often because of a service-connected disability determination. For a first-time VA use with no down payment, the funding fee is generally 2.15% of the base loan amount. On a $400,000 loan, that equals $8,600 if financed, making the starting loan balance $408,600.
For subsequent VA use with no down payment, the fee can be 3.3%. Putting at least 5% down can reduce the fee to 1.5%, while a 10% or larger down payment can reduce it to 1.25%. The fee structure is one reason a borrower should compare the full loan estimate, not just the note rate.
Conventional loans with less than 20% down commonly require private mortgage insurance. The cost varies materially by credit score, down payment, debt-to-income ratio, and coverage level. A borrower with a 760 score and 10% down may see a very different mortgage insurance quote than a borrower with a 640 score and 3% down.
Conventional mortgage insurance is not necessarily permanent. On many eligible loans, a borrower may request cancellation after reaching 80% of the original value through scheduled payments, subject to servicing conditions. Automatic termination commonly occurs at 78% of the original value if payments are current. VA loans do not have a monthly mortgage insurance charge, but the funding fee must be weighed against that advantage.
Closing cash and seller-paid costs
Purchase closing costs often fall around 2% to 5% of the purchase price, depending on location, title services, prepaid taxes and insurance, discount points, and escrow setup. On a $400,000 home, that can mean roughly $8,000 to $20,000 before the down payment.
Both VA and conventional transactions can use seller contributions within program limits. VA rules also permit certain seller-paid concessions, with a separate cap of 4% of the property’s reasonable value for concessions such as prepaid items or debt-related costs. A careful contract and loan-cost review matters because allowable closing costs, concessions, and financing choices are not the same thing.
No-out-of-pocket closing options may be available in some situations through pricing credits or seller contributions, but they are not free. A credit can mean a higher rate, a higher loan amount, or both.
Credit, income, and property rules
The VA does not set one universal minimum credit score. Individual mortgage providers establish their own overlays, and many VA approvals begin around 580 to 620, depending on the full file. Conventional financing commonly starts at a 620 score, while borrowers often receive stronger pricing and easier approvals as scores move toward 740 or higher.
VA underwriting places meaningful emphasis on residual income, which is the money left after major monthly obligations. Conventional underwriting relies heavily on debt-to-income ratio, credit history, assets, and automated underwriting findings. A buyer who has a modest score but stable income and manageable obligations may find VA underwriting more workable. A buyer with high income, excellent credit, and substantial assets may find conventional pricing attractive.
Reserve requirements also differ. A one-unit primary-residence conventional purchase may require no reserves in a straightforward automated approval, while second homes and investment properties often require two to six months of housing-payment reserves or more. VA loans may require reserves in higher-risk scenarios, such as certain multi-unit purchases, but a standard one-unit primary-home file may not.
VA financing is for a primary residence. A conventional loan can finance a primary home, second home, or investment property, subject to program guidelines. VA loans can also be assumable, which may be valuable if a future buyer can take over a lower existing rate, although approval and release-of-liability rules apply.
When conventional may be the better fit
Conventional financing deserves a close look when you are not eligible for VA benefits, are buying a second home or investment property, or have enough cash to put 20% down and eliminate mortgage insurance. It can also work well for borrowers seeking certain property types or loan structures outside VA guidelines.
For a VA-eligible buyer, conventional can still win if the conventional rate and fees are meaningfully lower, if the VA funding fee is not waived and creates too much financed balance, or if the borrower expects to sell or refinance quickly. The comparison should include the payment, cash to close, total balance after fees, break-even period, and likely refinance plans.
National weekly rate trends can move quickly. Freddie Mac’s Primary Mortgage Market Survey is a useful public benchmark for broad market direction, but it is not a personalized quote. Your actual rate depends on credit, occupancy, loan size, discount points, property type, and the program selected.
Why compare broker options before choosing
A mortgage broker can compare pricing and guidelines from multiple wholesale options, while a single-shelf mortgage provider generally offers the programs and pricing available within its own platform. That does not make one model universally better. It means the consumer should understand how many choices are actually being evaluated.
| Comparison point | Broker with wholesale options | Single-shelf pricing |
|---|---|---|
| Program access | Can review multiple participating wholesale programs | Limited to programs available on one platform |
| Rate and fee review | Can compare eligible quotes across available sources | Reviews the platform’s available pricing |
| Credit approach | May begin with a soft pull mortgage comparison | Process and credit policy vary by provider |
| Guideline fit | Can seek a fit for VA, conventional, self-employed, or nontraditional files | Underwriting options remain within one platform |
| Best use case | Buyers who want to test more than one eligible structure | Buyers satisfied with a known platform’s offering |
For buyers in Virginia, Florida, Tennessee, Georgia, Washington, D.C., North Carolina, South Carolina, and Maryland, FreeMortgageSearch.com offers a free mortgage search tool designed to compare eligible options with a NoTouch Credit Pull available. That can help you compare mortgage rates without hard pull pressure before deciding whether a full application makes sense.
Frequently asked questions
Is a VA loan always better than a conventional loan?
No. VA loans can be excellent for eligible primary-home buyers, especially with limited down-payment funds. Conventional financing can be better when its rate, fees, down payment structure, or property flexibility produces a lower total cost.
Do VA loans require a down payment?
Often, no. Eligible borrowers may finance up to 100% on a primary residence, subject to approval, property value, and program rules.
Do conventional loans require 20% down?
No. Some conventional programs permit as little as 3% down for eligible buyers. A 20% down payment can remove mortgage insurance, but it is not required for every conventional purchase.
What credit score is needed for a VA loan?
The VA does not publish one minimum score for every transaction. Many mortgage providers use thresholds around 580 to 620, while approval also depends on income, debts, payment history, and residual income.
What credit score is needed for a conventional loan?
A 620 score is a common starting point, although higher scores generally improve pricing and approval flexibility. Conventional mortgage insurance costs can rise sharply with lower scores.
Can the VA funding fee be waived?
Yes, some eligible borrowers are exempt. Confirm exemption status through your Certificate of Eligibility and loan review rather than assuming it applies.
Can I use a VA loan for an investment property?
No. VA financing is intended for a primary residence. Conventional financing may be used for eligible investment-property purchases.
Will a soft pull affect my credit score?
A soft credit inquiry is generally not scored like a hard inquiry. A no hard inquiry mortgage pre-approval discussion can help you understand possible options, but a full approval may later require additional verification.
A useful next step is not choosing a program from a headline. It is comparing the actual payment, cash needed, fee structure, and five-year cost using your own credit and home price. That is how a mortgage decision becomes clear instead of stressful.
Legal disclaimer: This article is educational only and is not a commitment to provide financing or a guarantee of approval, rate, fees, or terms. Mortgage options are subject to credit, income, assets, occupancy, property review, program rules, and underwriting requirements. Coast2Coast Mortgage, LLC originates loans only where Duane Buziak is licensed: VA, FL, TN, GA, DC, NC, SC, and MD. North Carolina consumers may review license information through NMLS Consumer Access.
Duane Buziak | Mortgage Maestro | NMLS #1110647 | Coast2Coast Mortgage, LLC NMLS #376205 | Licensed in VA, FL, TN, GA, DC, NC, SC, MD | (804) 212-8663 | duane@coast2coastml.com | NoTouch Credit Pull available — no hard inquiry, no credit hit.
