VA Loan vs. Conventional With 20% Down

The conventional advantage at 20% down

At 20% down, conventional has no private mortgage insurance and no funding fee. The loan amount is smaller, the cost structure is lean, and on pure total cost over a long hold, conventional is typically the lowest-cost structure available to most borrowers.

This is the one down-payment level where conventional genuinely competes with VA on cost. At 5% down, VA's no-monthly-insurance advantage is decisive. At 20% down, that advantage disappears — conventional has no insurance either — and the VA funding fee becomes a cost conventional does not carry.

The VA funding fee at 20% down

The VA funding fee drops to 1.25% at 10% down or more, the lowest purchase tier. On a $400,000 purchase with 20% down, the loan is $320,000 and the fee is 1.25% of $320,000, or $4,000 — a real cost that conventional does not have.

Exempt borrowers pay no funding fee at any down-payment level. For an exempt veteran, 20% down on a VA loan has no funding fee and no mortgage insurance, and the comparison shifts back toward VA on cost. Exempt status is the single factor that changes the 20% down math most.

Rate and qualifying differences

VA loans often price slightly below conventional rates, reflecting the VA guaranty. On identical files, the VA rate can be 0.125% to 0.375% lower, which over a 30-year hold reduces total interest meaningfully. This rate advantage can offset part or all of the funding fee on a long hold.

VA qualifying is built around residual income and is often more accommodating on DTI and credit than conventional. A borrower with a strong down payment but a higher DTI or a thinner credit file may find VA more accommodating, even at 20% down. Conventional pricing rewards high credit scores more aggressively, so a borrower with an 800 score may find conventional pricing competitive on rate.

Assumability: the VA advantage that compounds

VA loans are assumable by a qualified buyer. A conventional loan with 20% down is generally not assumable. If you lock a below-market rate and later sell, a buyer can assume the VA loan at that rate — a genuine selling point in a higher-rate market that can command a premium or a faster sale.

This is an option value, not a guaranteed benefit, but it is real. A veteran who locks a 4% VA loan and sells five years later in a 7% market has an asset — the assumable low-rate loan — that a conventional seller does not.

When conventional wins at 20% down

You have 20% down, a high credit score, and intend to keep the home long term. Conventional's lower cost structure — no funding fee, no mortgage insurance, aggressive pricing for high scores — makes it the lower total cost over a long hold, for a non-exempt borrower.

You want to preserve VA entitlement for a future purchase. Using conventional on this home keeps full VA entitlement free for a later, lower-cash purchase where the VA zero-down advantage matters more. This is a legitimate strategy for a veteran planning multiple buys.

When VA still wins at 20% down

You are exempt from the funding fee. No fee, no mortgage insurance, and often a lower rate — conventional does not compete on cost in that case. The qualifying flexibility of VA also applies.

You want the assumability option. You have a higher DTI or a credit file that conventional penalizes but VA accommodates. Or you expect to sell in a higher-rate environment, where the assumable VA loan is a selling tool.

The right answer is to price the same purchase both ways — same price, same 20% down, same hold period — and compare total cost. The funding fee, the rate difference, and the hold period are the three variables that decide it, and they are all knowable before you choose.