VA Loan vs. Conventional and FHA Mortgages
For eligible borrowers, a VA loan usually costs less each month than an FHA or conventional loan with a small down payment, because it has no monthly mortgage insurance. The trade-offs are a one-time funding fee and primary-residence rules. FHA and conventional loans are open to everyone who qualifies, and conventional loans also cover second homes and investments.
Key Takeaways
- VA loans have no monthly mortgage insurance. FHA charges an upfront premium of 1.75% plus an annual premium, and conventional loans require private mortgage insurance with less than 20% down.
- The VA funding fee for first use is 2.15% with less than 5% down, 1.50% with 5% to under 10% down, and 1.25% with 10% or more down.
- VA loans are only for eligible borrowers and primary residences. Conventional loans also cover second homes and investment properties.
- The cheapest loan depends on your down payment, credit and how long you keep the loan. Compare the total cost, not only the rate.
How do VA, FHA and conventional loans compare side by side?
| Feature | VA loan | FHA loan | Conventional loan |
|---|---|---|---|
| Who can use it | Eligible veterans, service members, Reserve and Guard members, some surviving spouses | Any qualified borrower | Any qualified borrower |
| Minimum down payment | Generally none up to the home’s reasonable value | 3.5% with a 580+ score; 10% with 500-579 | 3% on some first-time or income-limited programs; 5% is common; 20% avoids PMI |
| Mortgage insurance | None monthly | Upfront 1.75% plus annual premium of roughly 0.50% to 0.75% for typical 30-year loans | PMI with less than 20% down, typically roughly 0.3% to 1.5% of the loan per year |
| Other upfront charge | Funding fee, 1.25% to 3.30% on purchases; exempt borrowers pay none | Included in the 1.75% above | None specific |
| Credit score | VA sets none; lenders do. Lendia can work with scores as low as 580 for purchases up to $1,000,000 | 580 for 3.5% down | Typically 620 or higher |
| Debt-to-income | 41% guideline; residual income may allow more | Commonly 31% housing and 43% total; more with strong factors | Commonly up to 45%; up to about 50% with strong approval |
| Loan limits | None with full entitlement | County-based, $541,287 to $1,249,125 for 1 unit | County-based conforming limit, $832,750 to $1,249,125; above is jumbo |
| Occupancy | Primary residence | Primary residence | Primary, second home or investment |
| Seller help with costs | Normal closing costs and points; other concessions capped at 4% | Up to 6% | 3%, 6% or 9% depending on down payment (2% on investment) |
| Assumable | Yes, with approval | Yes, with lender approval | Generally not |
How does a VA loan compare with a conventional loan?
A conventional loan is not backed by a federal agency. If you put down less than 20%, you pay private mortgage insurance. PMI can be removed later: you can request it at 80% loan-to-original-value with a good payment history, and it ends automatically at 78% of the scheduled balance. A VA loan has no monthly mortgage insurance for the life of the loan, but the funding fee is paid once. Conventional loans are usually the better fit when you have 20% down, want a second home or investment property, or have no VA entitlement. See VA loan vs. FHA vs. conventional and what a conventional loan is.
How does a VA loan compare with an FHA loan?
FHA loans are insured by the Federal Housing Administration and are open to non-veterans. They can be a lifeline for lower credit scores, but the insurance is costly: an upfront 1.75% premium plus an annual premium that lasts for the life of the loan when you put down less than 10%, or 11 years with 10% or more. Many FHA borrowers later refinance into a conventional loan once they have 20% equity. For a veteran, VA usually avoids those costs. See what an FHA loan is and FHA mortgage insurance explained.
VA (first use, 5% down): funding fee 1.50%, or $12,112.50, which can be financed. No monthly insurance.
FHA: upfront premium 1.75%, or $14,131.25, which can be financed. Annual premium at an assumed 0.50% to 0.75% is $4,037.50 to $6,056.25 a year, or about $336 to $505 a month.
Conventional: no upfront fee. PMI at an assumed 0.50% to 1.00% is $4,037.50 to $8,075 a year, or about $336 to $673 a month.
The premium percentages are assumptions for the illustration, not quotes. Your actual cost depends on your credit and loan details.
Over time, the monthly insurance on the FHA and conventional loans adds up, while the VA funding fee is a one-time cost. Remember that a borrower financing the fee also pays interest on it. A VA loan is not automatically cheaper in every case, and a borrower with 20% down and strong credit may find conventional pricing competitive.
Which loan is right for me?
- Choose VA if you are eligible, plan to live in the home and want to avoid monthly mortgage insurance.
- Consider FHA if you are not VA eligible and have limited down payment or credit challenges.
- Consider conventional if you have 20% down, want a second home or investment property, or have excellent credit and are not eligible for VA.
You choose one loan program for each purchase, so you cannot combine VA and FHA. A co-borrower who is not a veteran can change how a VA loan works, so ask us before adding one.
What does the comparison look like in California?
Many California purchases are above the conforming limit, which means a conventional loan may become a jumbo loan with stricter credit, down payment and reserve rules. With full entitlement a VA loan has no VA limit. FHA, meanwhile, is capped by county. Look up your county to see where your purchase falls, then see VA loan limits, advantages of VA loans and conventional loans.
At Lendia, we compare all three for you
At Lendia, we compare your actual payment, upfront cost and long-term cost across VA, FHA and conventional options from multiple lenders. Rates and terms depend on your situation; approval requires qualification. Contact us or get a rate quote now.
Frequently Asked Questions
Is a VA loan always cheaper than FHA or conventional?
Often, but not always. The answer depends on your down payment, credit, funding fee status and how long you keep the loan. At Lendia, we compare your actual numbers.
Can I use VA and FHA together?
No. You choose one loan program per purchase, and we show you which fits best.
Is the VA funding fee higher than FHA mortgage insurance?
The VA fee is paid once and ranges from 1.25% to 3.30% on a purchase, with exemptions. FHA charges 1.75% upfront plus an annual premium. Add them up over your expected holding period.
Which loan has the best credit flexibility?
VA and FHA are both more flexible than conventional. The VA sets no minimum score, but lenders set their own. FHA allows a 580 score for 3.5% down.
Can a VA loan be used for a second home?
No. A VA loan is for your primary residence. A conventional loan can finance a second home.
Talk to a Licensed Lendia California Loan Officer
At Lendia, we review your situation and show you the programs you qualify for.