Difference Between VA Loan and Conventional Loan

A thumbs up with words Best ChoiceIf you're a veteran or active-duty service member in the market for a home purchase, you may be wondering about the differences between VA loans and conventional loans. While both types of loans can be used to finance a home purchase, there are significant differences in eligibility requirements, down payments, and more. In this article, we'll explore the differences between VA loans and conventional loans and help you determine which type of loan is right for you.

Overview of VA Loans

VA loans and conventional loans are two popular options for homebuyers. The main distinction between the two is that the Department of Veterans Affairs guarantees VA loans, whereas traditional loans do not. VA loans often have more favorable terms, such as lower interest rates and no down payment requirement.

In terms of mortgage payments, VA loans may also offer more flexibility. Borrowers can choose from various repayment plans, including fixed-rate and adjustable-rate mortgages. Additionally, VA borrowers may be eligible for assistance if they fall behind on their payments.

VA and conventional loans can be used for buying a primary residence. However, VA loans have specific eligibility requirements based on military service status and other factors. Conventional loans may also require a higher credit score or a larger down payment than VA loans. It is essential to consider all options before deciding which type of loan best suits your homebuyer's needs.

Overview of Conventional Loans

Conventional loans are one of the most popular types of mortgages in the United States. Unlike VA or FHA loans, these loans do not have government backing or insurance. Instead, they have support from investors and private lenders. Conventional loans typically require a higher credit score and down payment than other loan options. However, borrowers who meet these requirements can benefit from lower interest rates and more flexible terms.

Unlike VA loans, which are only available to eligible veterans and military service members, conventional loans have no special eligibility requirements. Anyone can apply for a traditional loan if they meet the lender's creditworthiness standards. Additionally, conventional loans offer more flexibility when it comes to property types. Borrowers can use this type of loan to finance primary residences, second homes, investment properties, or vacation homes.

Overall, conventional loans offer borrowers a range of benefits, including lower interest rates and greater flexibility in terms of eligibility requirements and property types. While these advantages may make them an attractive option for many homebuyers, it is essential to thoroughly research all loan options before deciding what kind of mortgage to pursue.

Eligibility Requirements for VA Loans

The eligibility requirements for VA loans are quite different from those for conventional loans. While traditional loans may require a higher credit score, VA loans have more lenient requirements since the government backs them. Veterans with lower credit scores may still qualify for a VA loan. Additionally, VA loans do not require a down payment like conventional ones.

One of the benefits of VA loans is that they often come with a lower monthly payment than conventional loans. This is because the Department of Veterans Affairs limits the amount lenders can charge in closing costs and origination fees. Additionally, VA borrowers do not have to pay for private mortgage insurance (PMI), which can add hundreds or even thousands of dollars to a monthly mortgage payment on a conventional loan.

Overall, suppose you're eligible for a VA loan. In that case, it's worth considering as an option over a conventional loan, especially if you want to save money on your monthly payments and upfront costs.

Eligibility Requirements for Conventional Loans

When obtaining a conventional loan, there are specific eligibility requirements that mortgage lenders require borrowers to meet. The first is a minimum credit score of 620, although some lenders may require an even higher score. Additionally, borrowers must have a debt-to-income ratio (DTI) below 43%, meaning their monthly debt payments cannot exceed 43% of their gross monthly income.

Another requirement for conventional loans is a down payment. Typically, lenders require a down payment of at least 3% of the home's purchase price. However, borrowers who put down less than 20% will be required to pay private mortgage insurance (PMI) until they reach that threshold. Lastly, borrowers need sufficient income and assets to cover closing costs and other expenses associated with buying a home when applying for a conventional loan.

Benefits of VA Loans

One of the main benefits of VA loans is that they offer lower loan rates than conventional loans. The Department of Veterans Affairs guarantees part of the loan, reducing lenders' risk. As a result, borrowers can save money on interest over the life of their loan.

Another advantage of VA loans is that they are designed specifically for veterans and active-duty military members who want to purchase a primary residence. Unlike conventional loans, VA loans usually require no down payment and have more flexible credit requirements. This means eligible borrowers can qualify for a mortgage with little or no money down and still get favorable terms.

VA loans also protect borrowers who experience financial hardship or difficulty making payments. The Department of Veterans Affairs has programs to help veterans avoid foreclosure and stay in their homes. Overall, VA loans provide a valuable opportunity for military service members to achieve homeownership with favorable terms and protections.

Benefits of Conventional Loans

One of the benefits of conventional loans over VA loans is that they have more flexible credit score requirements. While VA loans do not require a minimum credit score, many lenders will only approve borrowers with a credit score of 620 or higher. In contrast, conventional loans can be obtained with a lower credit score, although borrowers may need to pay a higher interest rate or make a larger down payment.

Another advantage of conventional loans is that they can be used for broader purposes than VA loans. For example, while VA loans are primarily intended for purchasing or refinancing primary residences, conventional loans can also finance investment properties and second homes. This flexibility makes them an attractive option for investors and those purchasing vacation homes.

Overall, while each type of loan has advantages and disadvantages, understanding their differences can help borrowers decide which kind of financing best meets their needs.

VA Loan vs. Conventional Loan: Key Differences

One of the critical differences between VA loans and conventional loans is the result of each. A VA loan is a type of mortgage that the U.S. Department of Veterans Affairs backs and is only available to veterans, active-duty service members, and their eligible spouses. On the other hand, a conventional loan adheres to the rules set forth by Fannie Mae or Freddie Mac rather than having any government backing.

Another difference between these two types of loans is that VA loans do not require a down payment, while many conventional loans do. This can be a significant advantage for those who may not have the funds to make a down payment on their home purchase. However, it's worth noting that some conventional lenders also offer low-down-payment options.

Finally, it's essential to understand that there are limits on how much you can borrow with each type of loan. Typically, conforming loan amounts set by Freddie Mac or Fannie Mae are the maximum for conventional loans. In contrast, VA loans have specific limits based on where you live and whether you have used your VA benefits.

VA Loan Features and Terms

Depending on their eligibility criteria, borrowers may have several mortgage options. One such option is VA loans, specifically designed for military veterans and service members. Unlike conventional loans, VA loans offer several unique features and terms that set them apart from other loan types.

For starters, VA loans do not require any down payment, which can be a significant advantage for those looking to purchase a home without saving up for a high upfront cost. Additionally, no private mortgage insurance (PMI) is required with VA loans, which can help borrowers save money on their monthly payments.

Furthermore, the interest rates on VA loans tend to be lower than those of conventional mortgages due to the government guaranteeing a portion of the loan. This makes it an attractive option for those who qualify and are looking for more affordable monthly payments over time. Overall, suppose you're eligible for a VA loan and want to take advantage of these benefits compared to traditional mortgages or FHA-insured ones. In that case, it's worth speaking with your loan officer about this type of financing before deciding what kind of home purchase might work best for you!

Conventional Loan Features and Terms

Traditional lenders like banks, credit unions, and mortgage companies offer conventional loans, which are personal loans. These loans can be used for various purposes, including purchasing a home. One key feature of traditional loans is that they require a down payment, typically ranging from 3% to 20% of the purchase price. The amount of the down payment required depends on factors such as the borrower's credit score and income level.

Another critical feature of conventional loans is their terms. Traditional loan terms vary widely depending on the lender and the borrower's financial situation but typically range from 10 to 30 years. During this period, borrowers make monthly payments that include principal and interest until the loan is fully repaid.

Overall, conventional loans offer borrowers flexibility in how they use their funds while providing options for manageable repayment plans over an extended period. However, it's essential to remember that requirements may differ significantly between lenders. Hence, it's necessary to do your research beforehand when taking out a conventional loan for purchasing a home or other significant purchases you might have in mind.

Down Payment Requirements for VA Loans

One significant advantage of VA loans over conventional mortgages is the lack of a down payment requirement. While traditional mortgage lenders may require borrowers to put down up to 20% of the home's purchase price, VA loans have no such obligation. This can be a significant financial relief for veterans and active-duty service members who may not have substantial savings or assets.

However, it's worth noting that opting for a zero-down VA loan can affect your overall mortgage rates and payments. Lenders typically charge higher interest rates on loans with lower down payments because they assume more risk. As such, VA loan borrowers may pay more in interest over time compared to those who put down a more significant sum upfront. It's essential to weigh the pros and cons carefully before deciding whether a zero-down VA loan is right for you.


As you weigh your options for financing your home purchase, it's important to understand the differences between VA loans and conventional loans. While both types of loans have their pros and cons, VA loans can be an excellent option for eligible veterans and active-duty service members who are looking for favorable terms and flexible requirements. Remember, your VA loan benefit is designed to help you achieve your homeownership goals - use it to your advantage by choosing the loan type that's right for you.