For an eligible borrower, a VA loan can mean no down payment and no monthly mortgage insurance, but it may carry a one-time funding fee and strict occupancy and property rules. A conventional mortgage can be available with as little as 3% down, yet a down payment below 20% typically brings private mortgage insurance (PMI). Neither label guarantees the cheaper loan or an approval: the property, borrower, lender, rate, points, and exact Loan Estimate determine the result.
The fairest comparison is to request VA and conventional offers for the same home, price, term, rate-lock period, and points assumptions. Compare cash to close, the total monthly payment, upfront charges, and the projected cost over the period you expect to keep the loan.
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VA loan vs. conventional mortgage at a glance
| Feature | VA purchase loan | Conventional mortgage |
|---|---|---|
| Down payment | No down payment may be required when the sales price is no higher than the VA appraisal. Entitlement, appraisal, and lender underwriting still apply. | Some programs backed by Fannie Mae or Freddie Mac allow as little as 3% down, but the minimum varies by program and lender. |
| Recurring mortgage insurance | No monthly mortgage insurance. | PMI is typically required when the down payment is below 20%, subject to the loan structure and lender terms. |
| Upfront program charge | A one-time VA funding fee may apply. Eligible borrowers can generally pay it at closing or finance it. | No VA funding fee. Origination charges, points, appraisal, and other closing costs vary by lender and offer. |
| Basic eligibility | Eligible service member, Veteran, National Guard or Reserve borrower with a Certificate of Eligibility (COE), satisfactory credit, sufficient income, and personal occupancy. The lender makes the final credit decision. | Eligibility and pricing depend on the specific conventional program, lender, credit profile, income, debts, assets, property, and loan limits. |
| Occupancy and property | Personal occupancy is required. VA guidance covers eligible homes such as a single-family residence of up to four units and a condominium in a VA-approved project. | Rules depend on the product. Conforming loans follow Fannie Mae or Freddie Mac requirements; non-conforming loans are less standardized. |
| Rate and total payment | Varies by lender, points, term, lock period, borrower, and property. The funding fee can increase the balance and interest cost if financed. | Varies by lender, points, term, lock period, borrower, property, and PMI pricing. |
The practical takeaway is conditional. VA is often strongest for an eligible buyer who wants to preserve cash and avoid a recurring insurance charge. Conventional financing can be competitive when a borrower has a sizeable down payment, strong credit, favorable PMI pricing, or a conventional offer with a lower rate or fewer points. Your official Loan Estimates—not the program name—settle the comparison.
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The U.S. Department of Veterans Affairs says a purchase borrower can make no down payment when the sales price does not exceed the home’s appraised value. That is a financing rule, not an automatic approval. The lender still verifies income, debts, credit history, assets, occupancy, and the property’s condition and value. A low- or zero-down VA loan can therefore fail if the borrower does not meet underwriting requirements or the appraisal does not support the contract price.
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Appraisal and entitlement limits
If the price is higher than the appraised value, the difference generally cannot simply be covered by a VA loan. The transaction may require a price reduction, additional borrower cash, or another solution acceptable to the lender. Entitlement also matters: full entitlement does not mean unlimited borrowing, and a borrower with previously used entitlement may face different calculations. Ask the lender to explain the entitlement and appraisal figures for the specific property before waiving contingencies.
Why zero down is not zero cash
Even with no down payment, a buyer may need money for closing costs, prepaid taxes and insurance, inspection or appraisal charges, points, and other transaction items. The VA purchase guidance says buyers and sellers can negotiate who pays many closing costs and that seller credits may cover some costs. It also states that purchase-loan closing costs other than the funding fee cannot be financed under its guidance. The amount shown as “cash to close” on the Loan Estimate and Closing Disclosure is therefore the number to plan for, not the down payment alone.
Conventional down payments and PMI
Low-down-payment options
“Conventional” means the mortgage is not part of a specific government program. Consumer Financial Protection Bureau guidance notes that some conventional loans backed by Fannie Mae or Freddie Mac can require as little as 3% down. That is not a universal conventional minimum: the required percentage depends on the program, occupancy, property, borrower, loan amount, and lender overlays.
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What PMI adds
When the down payment is below 20%, conventional lenders typically require private mortgage insurance. PMI protects the lender rather than the borrower and is a separate recurring cost. Its price depends on factors such as the loan-to-value ratio, credit profile, insurer, and the offer’s structure. A 3% down conventional loan may therefore conserve cash at closing while producing a higher monthly payment than a larger-down-payment loan.
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When PMI can end
For many covered conventional mortgages on a single-family principal residence closed on or after July 29, 1999, federal rules allow the borrower to request PMI cancellation when the scheduled balance reaches 80% of the property’s original value, if conditions are met. The borrower generally must be current, have a good payment history, have no junior liens, and satisfy applicable property-value requirements. Automatic termination generally occurs when scheduled principal reaches 78% of original value and payments are current. Exceptions apply, so check the loan documents and ask the servicer for its process; do not assume every conventional loan follows the same timeline.
VA funding fee: the main VA-specific cost
The VA funding fee is a one-time charge that helps support the VA loan program. The fee applies to the loan amount, and the percentage depends on the borrower’s down payment and whether it is a first or subsequent use. The VA fee page displays the following purchase and construction rates effective April 7, 2023:
| Down payment | First use | Subsequent use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more, but less than 10% | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
Some borrowers are exempt, including certain borrowers who receive or are eligible for VA disability compensation. Exemption categories and fee rates can change, so verify the live VA fee chart and your status before relying on a calculation.
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A VA purchase borrower can generally pay the funding fee at closing or finance it into the mortgage. Financing preserves cash today but increases the principal balance, which can increase interest paid over the life of the loan. Other purchase-loan fees and charges must be paid at closing under the VA guidance cited above. Lender interest rates, discount points, origination charges, and third-party costs are separate from the funding fee and vary by offer.
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Illustrative funding-fee math
The following examples show the percentage calculation only. They are not quotes and exclude points, closing costs, prepaid items, and any change caused by financing the fee.
| Illustration | Base loan amount | Fee rate | Fee amount |
|---|---|---|---|
| First use, less than 5% down | $400,000 | 2.15% | $8,600 |
| Subsequent use, less than 5% down | $400,000 | 3.3% | $13,200 |
| First or subsequent use, 5% to less than 10% down | $380,000 | 1.5% | $5,700 |
| First or subsequent use, 10% or more down | $360,000 | 1.25% | $4,500 |
In an actual file, the lender calculates the fee using the eligible loan amount and the borrower’s verified use and exemption status.
Who can qualify for a VA loan?
Certificate of Eligibility
A VA borrower generally needs a valid Certificate of Eligibility. The COE establishes entitlement; it does not promise that a lender will approve the mortgage. The lender still evaluates credit history, income stability and amount, recurring debts, assets, and the property’s value and condition.
Credit and underwriting
VA does not set a minimum credit score in the cited entitlement guidance, but individual lenders may impose their own score requirements and underwriting rules. A lender can also decline an application because of debt-to-income concerns, insufficient residual income, unverifiable funds, recent credit problems, or a property issue. Ask each lender which overlays it applies rather than relying on a score advertised for a different loan product.
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Occupancy requirement
The VA purchase program is intended for a home the eligible borrower will personally occupy. It is not a general-purpose investment-property loan. A single-family home of up to four units may qualify when the occupancy and other VA requirements are met; a condominium must be in a VA-approved project. Confirm project approval and unit eligibility early, because an appraisal cannot cure an ineligible property type.
How conventional qualification differs
Conventional underwriting is not one uniform rulebook. Conforming loans follow maximum loan amounts and requirements associated with Fannie Mae or Freddie Mac. Non-conforming products are less standardized, and lender eligibility, pricing, and features can vary widely. Credit score, down payment, reserves, income documentation, debt load, property type, occupancy, and loan size all affect the offer.
There is no single score cutoff that predicts every conventional approval. A borrower who is ineligible for VA may still qualify conventionally, while an eligible Veteran may receive a better conventional quote because of a particular lender’s pricing or PMI model. Conversely, a conventional approval with a small down payment may carry PMI and a higher rate than expected. Compare the complete offer rather than a headline minimum.
Compare real offers with matching Loan Estimates
Use official Loan Estimates from multiple lenders. The Consumer Financial Protection Bureau advises shopping several offers and reviewing the estimates before making a final decision. To make the comparison meaningful, keep the assumptions consistent:
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- Use the same home and contract price. A different price can make one program appear cheaper simply because it borrows less.
- Match the down payment and loan amount. If the VA funding fee is financed, show both the starting balance and the balance including the fee; do not compare it with a conventional loan that has a different principal.
- Match the term and structure. Compare the same fixed or adjustable structure and the same repayment term.
- Match the rate-lock period and points. A lower rate purchased with points is not directly comparable with a zero-point quote.
- Review lender and third-party charges. Check origination charges, underwriting or processing fees, appraisal, title services, recording charges, prepaid taxes and insurance, and credits.
- Compare cash to close. Include the down payment, funding fee if paid upfront, closing costs, prepaids, seller credits, and deposits already paid.
- Compare the complete monthly payment. Include principal and interest, property taxes, homeowners insurance, HOA dues when applicable, PMI on the conventional offer, and any other recurring charge shown.
- Test the time horizon. If you might refinance or sell soon, upfront points and a financed funding fee may have a different effect than they would over a full 30-year term.
Loan Estimates are not final Closing Disclosures, and rates can change until locked. Still, matching the documents exposes whether a “lower payment” comes from a smaller loan, a temporary rate assumption, more points, omitted insurance, or a genuine program advantage.
Worked comparison: what changes the answer
Imagine an eligible buyer and a non-VA buyer considering the same $400,000 home. A VA offer could use zero down if the appraisal supports the price and underwriting approves the borrower. If the borrower is in first use and not exempt, the displayed 2.15% fee would be $8,600 on a $400,000 base loan; financing it would raise the balance above $400,000. There would be no monthly mortgage insurance, but the buyer would still need cash for allowable closing and prepaid items.
A conventional offer might use 3% down, or $12,000, leaving a $388,000 base loan. If PMI applies, it would add a recurring charge until the applicable cancellation or termination rules are met. The conventional lender could nevertheless offer a lower interest rate, fewer points, or lower other charges. The VA offer could instead win on monthly cost or required cash. Only the matched estimates show which combination is cheaper for that buyer’s expected holding period.
This example does not establish a typical price or payment. It demonstrates why comparing only the down payment or only the interest rate produces an incomplete answer.
Property, appraisal, and transaction pitfalls
- Contract price above value: A VA appraisal below the price can create a gap that must be addressed with a renegotiation, borrower funds, or another lender-approved arrangement.
- Assuming entitlement equals approval: A COE and available entitlement do not replace credit, income, debt, asset, and property underwriting.
- Calling every condo eligible: VA condominium projects must meet VA approval requirements; verify status before spending money on a contract.
- Budgeting only the down payment: Closing costs, prepaids, points, and the funding fee when due all affect cash to close.
- Treating 3% conventional financing as universal: Program and lender rules differ, and PMI or other pricing adjustments may apply.
- Assuming PMI disappears immediately at 20% equity: Request and automatic termination rules have conditions, documentation requirements, and exceptions.
- Comparing different rate assumptions: A VA quote locked for one period and a conventional quote floating for another do not provide a reliable price comparison.
- Ignoring seller credits: Credits can change cash to close, but they are limited by contract, lender, and program rules and cannot simply be treated as free cash.
Which mortgage is likely to fit?
A VA loan may fit when
- You meet VA service and occupancy requirements and want to preserve savings for reserves, repairs, or moving costs.
- The appraisal supports the purchase price and the no-monthly-mortgage-insurance feature materially lowers the projected payment.
- The funding fee, after any exemption, is acceptable compared with the conventional loan’s PMI and other charges.
A conventional loan may fit when
- You are not VA-eligible or the property or occupancy plan does not meet VA rules.
- You can make a larger down payment and obtain favorable pricing without PMI, or you have a strong credit profile that produces an attractive conventional quote.
- A particular lender offers a lower rate, fewer points, or lower total charges that outweigh the VA funding fee advantage.
When both deserve a full quote
Eligible borrowers should normally request both when the property qualifies. The VA program’s no-down-payment and no-monthly-insurance features are valuable, but the fee and lender pricing can change the result. A conventional quote can be useful as a negotiating benchmark even when the buyer expects to choose VA.
Questions to ask before choosing
- What is my verified VA entitlement, and is the property and condo project eligible?
- Am I exempt from the VA funding fee, and what documentation supports that exemption?
- What is the exact funding-fee amount, and what will the balance and payment be if I finance it?
- For the conventional quote, what is the PMI amount, how is it paid, and under what conditions can it be canceled?
- Which charges are lender fees, which are third-party costs, and which can seller credits cover?
- Are the rates locked, for how long, and how many points are included?
- What cash to close and total monthly payment appear on each Loan Estimate?
- How would the comparison change with 5% or 10% down, a different term, or a refinance or sale after several years?
Keep the figures current
The VA purchase page was last updated January 7, 2026, while the VA fee page displays purchase rates effective April 7, 2023. Funding-fee rates, exemption rules, lender overlays, PMI pricing, interest rates, and conforming loan limits can change. Before signing, verify the current VA guidance, obtain a current COE determination, and review the lender’s Loan Estimate and Closing Disclosure for the exact transaction.
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