VA Loan vs. Conventional Loan: Which Costs Less?

The structural differences

VA loans can be made with no required down payment and do not require private mortgage insurance. In exchange there is a one-time funding fee, waived entirely for exempt borrowers, which may be financed into the loan.

Conventional loans allow as little as 3% to 5% down but require private mortgage insurance until the loan reaches roughly 80% of value. There is no funding fee, and with 20% down there is no mortgage insurance either.

VA underwriting adds a residual income test and is often more accommodating on debt-to-income ratio and credit history. Conventional pricing rewards high credit scores more aggressively. Borrower circumstances and individual lender terms change all of these numbers, so treat the scenarios below as structure, not as a quote.

Scenario 1 — $400,000 purchase, limited cash, five-year hold

Conventional at 5% down: $20,000 at closing, a $380,000 loan, and private mortgage insurance of roughly $145 a month until the balance reaches 80% of value, which on a normal amortization schedule takes several years. Over five years that is about $7,000 in insurance on top of the $20,000 up front.

VA with nothing down: no down payment, a $400,000 base loan, and a 2.15% first-use funding fee of $8,600 financed into the loan for a $408,600 balance. No monthly insurance. Roughly $53 a month of the payment traces to the financed fee.

Read it this way. The VA borrower keeps $20,000 in reserves and avoids $7,000 of insurance, at the cost of a larger balance and slightly more interest. For a family that needs cash for a move, furniture, and an emergency fund, this is not a close call.

Scenario 2 — same purchase, 20% down available

Conventional at 20% down: $80,000 at closing, a $320,000 loan, no mortgage insurance, and no funding fee. This is the lowest lifetime cost structure available to most borrowers.

VA at 20% down: the funding fee drops to 1.25%, or $4,000 on a $320,000 loan, but it does not disappear. Unless you are exempt, conventional is cheaper here on total cost.

There is still a reason a veteran might choose VA at this level: preserving $80,000 of liquidity, or keeping conventional terms unavailable for another reason. But on pure cost, 20% down favors conventional.

Scenario 3 — exempt borrower

A borrower exempt from the funding fee pays no down payment, no mortgage insurance, and no funding fee. There is no conventional structure that competes with that on cost at any down payment level.

If you are exempt, the comparison is effectively over. The remaining question is which lender's fees and pricing are lowest on the VA loan itself.

When conventional is genuinely the better answer

You have 20% down and intend to keep the home long term. You are buying a second home or an investment property, which VA financing does not cover. You want to preserve entitlement for a future purchase, which matters if you expect to keep this home as a rental after a PCS. Or the property is a type VA financing will not accept.

These are legitimate cases and they deserve honest math rather than a reflex toward the VA benefit.

When VA is clearly stronger

Limited cash to close. A thinner credit file. A debt-to-income ratio above conventional guidelines but with solid residual income. Exempt status. A market where avoiding mortgage insurance materially improves the payment you qualify for.

One more advantage that rarely appears in comparisons: VA loans are assumable by a qualified buyer. If you lock a below-market rate, that becomes a real asset when you sell.

Compare it on your numbers

Use the same purchase price, the same closing date, and the period you actually expect to own the home — for many military families, one duty-station cycle. Then compare total cash to close and total outlay over that horizon rather than rate or payment in isolation.

If you already have a conventional Loan Estimate, the fastest way to settle this is to price the same purchase both ways and put the two side by side.