VA Loan vs. Conventional Loan: Which One Is Right for You?
If you’re a Veteran or active duty service member shopping for a home, you’ve probably heard that you have access to a VA loan. What’s less clear is whether you should actually use it, or whether a conventional loan might make more sense for your situation.
The honest answer is that for most Veterans, the VA loan wins. But there are a handful of situations where a conventional loan is worth considering. Here’s how to think through it.
See our post on VA loan benefits most Veterans don’t know about for more context before diving into this comparison. = https://kevinbrierton.com/what-most-veterans-dont-know-about-their-va-home-loan-benefit/
What Makes These Two Loans Different
A conventional loan is what most homebuyers use. It’s not backed by the government, so lenders set their own requirements around credit scores, down payments, and insurance. If you put less than 20% down on a conventional loan, you’ll typically pay private mortgage insurance (PMI) every month until you reach 20% equity.
A VA loan is backed by the Department of Veterans Affairs and is available to eligible Veterans, active duty service members, and surviving spouses. Because the government guarantees a portion of the loan, lenders can offer terms that would otherwise be difficult to qualify for.
The differences between the two come down to a few key areas.
Down Payment
With a conventional loan, most buyers put down somewhere between 3% and 20%. The less you put down, the more you’ll pay in PMI each month.
With a VA loan, eligible borrowers can buy with zero down payment. That’s not a promotional offer or a limited-time program. It’s a core feature of the benefit. According to a NewDay USA survey, 68% of Veterans don’t even know this is an option.
If saving for a down payment is what’s keeping you on the sideline, this alone may change your timeline significantly.
Monthly Mortgage Insurance
This is one of the biggest financial differences between the two loan types.
Conventional loans require PMI if you put less than 20% down. Depending on your loan amount and credit profile, that can run $100 to $300 or more per month. You pay it until you hit 20% equity, which on a 30-year loan can take years.
VA loans don’t require PMI, even with zero down. That’s a real monthly savings that adds up quickly over the life of a loan.
The VA Funding Fee
VA loans do come with a one-time funding fee, which is worth understanding. It helps offset the cost of the program for taxpayers and is typically rolled into the loan rather than paid out of pocket.
The amount varies based on factors like whether it’s your first time using the benefit and how much you put down. Some Veterans, including those receiving VA disability compensation, may be exempt from the fee entirely.
It’s worth asking about your specific situation before assuming it’s a dealbreaker.
Credit and Qualification
Conventional loans tend to have stricter credit requirements. The better your credit score, the better your rate. If your score is below a certain threshold, you may not qualify at all or you’ll pay a premium for it.
VA loans are generally more flexible on credit. There’s no official minimum credit score set by the VA itself, though individual lenders typically have their own floors. The point is that the VA loan is designed to be accessible, not exclusive.
When a Conventional Loan Might Make More Sense
The VA loan is the stronger option for most Veterans. But there are a few scenarios where conventional is worth a conversation:
You’ve already paid off your VA loan entitlement and want to preserve it for a future property. You’re buying a home that doesn’t meet VA property requirements. You have significant savings and a strong credit profile, and you want to compare rate offers side by side.
None of these are automatic reasons to go conventional. They’re reasons to run the numbers before deciding.
What About BAH and BAS?
If you’re active duty or a qualifying reservist, your Basic Allowance for Housing and Basic Allowance for Subsistence may count toward your income qualification on a VA loan. Because these allowances are non-taxable, lenders can often gross them up, meaning they may carry more weight than the same amount of taxable income would.
If you’ve been calculating what you can afford without factoring those in, your actual buying power may be higher than you think.
Bottom Line
For most Veterans and active duty buyers, the VA loan is the better financial choice. No down payment, no PMI, and more flexible qualification make it a benefit worth using.
That said, every situation is different. The right loan for you depends on your credit, your savings, how long you plan to stay in the home, and what your income picture looks like.
If you’re in the Phoenix metro or stationed near Luke Air Force Base, I work with Veterans and active duty buyers across Arizona and can walk you through both options with your actual numbers so you can make the decision with confidence.
Not sure which loan makes more sense for your situation?
That’s exactly what a Mortgage Strategy Call is for. We’ll look at your income, your credit, and your goals and figure out which loan puts you in the best position, not just for this purchase but for your financial future.
Schedule your Mortgage Strategy Call here: https://kevinbrierton.com/call
