Va vs. Conventional Loans: Which Mortgage Is Right for You?

What is a VA loan?

VA loans are mortgages available to active military members, veterans and surviving military spouses. These loans have the backing of the U.S. Department of Veterans Affairs (VA) but are offered through private lenders. Having this backing makes it less risky for lenders, which in turn leads to advantages for borrowers.

Advantages of VA loans include:

• No down payment requirement
• Lower credit score threshold
• No private mortgage insurance (PMI)
• Lower interest rates

You must meet certain criteria for VA loans in addition to military service. Lenders will review your income, credit score, debt-to-income ratio (DTI) and other financial factors like your employment history.

You will also have to present recent pay stubs, banking statements and other supporting documents.

Eligibility

To be eligible for a VA loan you’ll have to meet one of several qualifying factors, explained Seamus Nally, CEO of TurboTenant.

“These factors include 90 consecutive days of active service during wartime, 181 days of service during peacetime, six years of service in the National Guard or Reserves or 90 days of service (with at least 30 consecutive) under Title 32 orders, or you have to be the spouse of a service member who passed either while serving or due to a service-related disability,” Nally said.

However, if you don’t meet one of these exact criteria, it may still be worth applying for a VA loan.

“These are the basic qualifying factors, but some people who don’t meet any of the criteria may still qualify for a VA loan if they were discharged, depending on their discharge type,” Nally said.

You must also present a Certificate of Eligibility (COE), which confirms your eligibility for receiving a VA loan.

Pros and cons of a VA loan

“One of the primary ways in which VA loans help make homebuying more affordable is by eliminating the requirement of a down payment,” said Nally. “For those who have not had the ability to save up enough money to put 10 to 20% down, VA loans help them cross that accessibility barrier.”

VA loans have other benefits too, including no PMI — paying PMI can tack on hundreds of dollars to the mortgage payment each month. Typically, VA loans also have lower interest rates, which can save you thousands of dollars over the years as well.

Borrowers can access the VA loan benefit multiple times during their lifetime, which means you can use it as many times as you purchase a primary residence.

While VA loans have a long list of advantages, you should carefully consider the disadvantages too, including the VA funding fee due at closing. Also, you can only use VA loans for primary residences.

» MORE: Advantages of a VA loan down payment

What is a conventional loan?

A conventional loan is a mortgage that’s not backed by any government agency. You can secure it through private lenders, such as banks, credit unions and mortgage companies.

Conventional loans generally have stricter requirements for approval compared to a VA loan, including higher credit scores, lower DTI and proof of income.

You must also purchase PMI if you put down less than 20% for a down payment. And conventional loans typically have higher interest rates compared to VA loans, which can impact affordability.

However, these loans offer greater flexibility for the types of properties you can finance.

Conventional loans have three major loan types:

• Conforming: These must meet Federal Housing Finance Agency (FHFA), Fannie Mae and Freddie Mac requirements. The maximum loan limit changes annually based on the housing market and area — some states, such as Hawaii and Alaska, have higher limits.
• Nonconforming: These loans do not meet the requirements to be acquired by Fannie Mae or Freddie Mac.
• Jumbo: Jumbo loans are a type of nonconforming loan for higher-priced homes that exceed the maximum loan limit and require a larger down payment and higher credit score.

Pros and cons of a conventional loan

While conventional loans do have strict criteria for eligibility, they offer greater flexibility compared to other types of loans — including VA loans.

» MORE: What is the average down payment on a house?

Is a VA or conventional loan best for you?

Choosing between a VA versus a conventional loan comes down to several factors:

1. It depends on the type of property you’re financing. Since VA loans can only apply to primary residences, it may not work for your particular situation.
2. It can also depend on how much money you have for a down payment. If you do not have a down payment or it’s less than 3%, then a VA loan may be the best option.
3. If you don’t meet the military service criteria, you won’t qualify for a VA loan and will need to consider a conventional loan or another government-backed option, such as an FHA loan.

Keep in mind that regardless of which type of mortgage you go for, interest rates have a significant impact on the amount you pay over the life of the loan. Compare at least three mortgage loan quotes so you can see which lender and loan product offers the most competitive interest rate.

» MORE: Conventional mortgage vs. FHA

Bottom line

Choosing between a VA loan and a conventional loan largely comes down to what type of property you need it for and your down payment amount. Both types of loans have advantages and disadvantages, so it’s essential you consider these differences against your own financial situation before deciding.