VA vs. Conventional Loan: Costs and Trade-offs

A VA loan can preserve cash for an eligible buyer purchasing a home to live in, and it has no monthly mortgage insurance. Conventional loans can serve more occupancy types. Compare the same purchase, down payment and holding period; a funding-fee exemption can change the result.

Compare eligibility and occupancy

Conventional and VA purchase rules
Decision	Conventional	VA purchase loan
Eligibility	Program and lender underwriting; no VA benefit required	VA Certificate of Eligibility plus income, credit and lender requirements
Occupancy	Eligible primary home, second home or investment property	Home the borrower will occupy; eligible properties may have up to four units
Down payment	Some eligible one-unit primary-home programs allow 3% down	Often none when entitlement, appraisal and lender rules support it
Mortgage insurance	PMI generally required below 20% down	No monthly PMI or MIP
Limits	Conforming loans fit the county/unit limit	Full entitlement has no VA county loan cap; lender and appraisal still constrain borrowing

Partial entitlement may produce a down-payment requirement. Sources: Fannie Mae 97% options, occupancy rules, CFPB PMI, VA purchase guidance and VA entitlement.

VA funding fee and exemptions

VA purchase funding fee for non-exempt borrowers
Down payment	First use	Subsequent use
Under 5%	2.15%	3.30%
5% to under 10%	1.50%	1.50%
10% or more	1.25%	1.25%

The fee applies to the loan amount before financing it. Exemptions include eligible service-connected disability compensation recipients, certain borrowers eligible for compensation but receiving retirement or active-duty pay instead, surviving spouses receiving DIC, qualifying pre-discharge ratings, and active-duty Purple Heart recipients under VA evidence and timing rules. Confirm status with VA and your lender. The fee can be paid at closing or financed; financing adds interest. VA fee schedule and exemption criteria.

Worked five-year comparison

Hypothetical inputs, not offered pricing: $400,000 price, $20,000 down for both, a 30-year fixed loan at an invented 6% rate, 60 scheduled payments and no extra payments. Conventional PMI is an invented 0.60% annual premium on the original loan, held constant. VA borrower is non-exempt with a 1.50% fee financed. These are calculation inputs, not available rate or insurance quotes.

Five-year comparison with the same purchase and down payment
Measure	Conventional	VA
Starting loan	$380,000	$385,700, including $5,700 fee
Monthly principal and interest	$2,278.29	$2,312.47
Monthly PMI	$190.00	$0
Balance after 60 payments	$353,606.56	$358,910.65
Interest over 60 payments	$110,304.08	$111,958.64
Interest + PMI + funding fee	$121,704.08	$117,658.64

The last row excludes principal repayment, down payment, taxes, homeowners insurance and other closing costs. It counts the entire financed fee once, including the portion still owed. These exclusions and actual terms can change the choice. Recalculate for an exempt VA borrower; compare actual Loan Estimates and read the PMI guide and down-payment guide.

Who this may fit

Eligible service members, veterans, and surviving spouses evaluating whether a conventional or VA loan is the better fit for a specific purchase.

Key decision factors

VA eligibility and remaining entitlement
Property type and occupancy (VA is for primary residences)
VA funding fee vs conventional PMI over the same holding period
Down payment expectations and cash reserves

Illustrative example

Common mistakes

Assuming VA is always cheaper
Ignoring occupancy rules
Overlooking the funding fee in total-cost comparisons

Questions to ask a licensed loan officer

How does my funding fee compare to conventional PMI over the time I'll keep the loan?
What is my remaining VA entitlement and how does it affect the loan?
Is there a scenario where conventional makes more sense for my file?

Common questions

Do VA loans have mortgage insurance?

VA loans have no monthly mortgage insurance, but a funding fee may apply unless exempt. Conventional loans with less than 20% down generally carry PMI, subject to cancellation rules for covered loans.

Can a veteran choose a conventional loan instead of VA?

Yes. A conventional loan can serve eligible second homes and investment properties, or may suit a borrower preserving VA entitlement for later.

Can I use a VA loan for an investment property?

VA purchase loans require the borrower to occupy the home; eligible properties may have up to four units. Ask the lender how occupancy applies to your transaction.

How do I know if I'm eligible for a VA loan?

Eligibility depends on service history and is confirmed with a Certificate of Eligibility from the VA. A lender can usually request it for you.

Choose your next step

Have a mortgage question?

Share a mortgage-planning request for review by Bolt Home Loans, or keep exploring your options here.

Continue planning

The planning request is not an application, approval, preapproval, rate quote, rate lock, or commitment to lend. Bolt Home Loans LLC, NMLS 2784913.

Sources

Primary sources relied on for this page. Check scope varies by entry; a source check is not a licensed or human compliance review.

VA — Purchase Loan Eligibility and Benefits
U.S. Department of Veterans Affairs · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked Certificate of Eligibility, lender credit and income requirements, owner occupancy, eligible properties with up to four units, conditional no-down-payment benefit, and absence of monthly PMI or MIP. Editorial source check only; not a licensed human or compliance review.
VA — Home Loan Entitlement and Limits
U.S. Department of Veterans Affairs · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked the absence of a county cap for full entitlement, lender and appraisal constraints, and partial-entitlement guaranty calculations that may require a down payment. Editorial source check only; not a licensed human or compliance review.
VA — Funding Fee and Loan Closing Costs
U.S. Department of Veterans Affairs · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked purchase funding fees: under 5% down, 2.15% first use or 3.30% subsequent use; 5% to under 10%, 1.50%; and at least 10%, 1.25%. Exemptions and financing the fee can change the comparison; the fee is assessed before adding the financed fee. Example interest and PMI inputs are hypothetical. Editorial source check only; not a licensed human or compliance review.
CFPB — What Is Private Mortgage Insurance?
Consumer Financial Protection Bureau · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked PMI's purpose, general trigger with less than 20% down, available payment structures, and Loan Estimate disclosure. The 0.60% example premium is hypothetical, not a published rate. Editorial source check only; not a licensed human or compliance review.
Fannie Mae 97% LTV Options
Fannie Mae · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked Standard 97's first-time-buyer condition and lack of an income cap, 97% LTV eligibility, and the high-balance exclusion for Standard 97 and HomeReady. The historical 620-score FAQ is superseded by the current credit-score section. Editorial source check only; not a licensed human or compliance review.
Selling Guide B2-1.1-01 — Occupancy Types
Fannie Mae · Status: Verified (see check notes) · Published/effective: unverified · Last checked: 2026-09-25
What was checked
Checked principal-residence, second-home, and investment-property occupancy categories. Editorial source check only; not a licensed human or compliance review.

VA vs. conventional loans