Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
In 2025, prospective homebuyers—veterans and non-veterans alike—have more mortgage choices than ever. Deciding between a VA loan and a conventional loan involves weighing benefits like lower rates and no down payment against limitations like primary-residence restrictions. This guide breaks down the key differences, recent updates, and real-world scenarios to help you choose with confidence.
What Are VA Loans and Conventional Loans?
VA Loans
- Government-backed by the U.S. Department of Veterans Affairs, but funded through private VA-approved lenders.
- Eligibility limited to veterans, active-duty service members, reservists, and some surviving spouses.
- Designed to facilitate 100% financing for primary residences only.
Conventional Loans
- Privately underwritten, not government-insured, available to any qualified applicant.
- Can be used for primary homes, secondary dwellings, or investment properties.
- Typically require a down payment of 3–20%, depending on program and borrower qualifications.
VA Loan Advantages (2025)
- Zero Down Payment
Most eligible borrowers can purchase with no money down. - No PMI, ever
VA loans don’t require private mortgage insurance—it’s replaced by a one-time funding fee. - Lower Interest Rates
As of early 2025, VA rates average around 6.30–6.97%, slightly lower than conventional rates (~6.79%). - Flexible Credit & DTI
Lenders may accept credit scores as low as 580–620, and allow higher debt-to-income ratios than conventional loans. - Capped Closing Costs & No Prepayment Penalties
The VA restricts lender fees and waives penalties for early payoffs. - Adaptable Refinance Options
Programs like the Interest Rate Reduction Refinance Loan (IRRRL) streamline refinancing, with no appraisal or full underwriting in most cases.
VA Loan Limitations
- Primary-Residence Only
VA loans cannot be used for second homes, vacation properties, or investor purchases. - Funding Fee Required
Ranges from 2.15% to 3.3% on purchases for first-time users, higher for repeats—though disabled veterans may be exempt. - Seller & Agent Awareness
Some sellers/agents are unfamiliar with VA appraisals and zero-down offers, potentially complicating negotiations. - Limited Loss-Mitigation Tools
The VA’s servicing and foreclosure paths are less robust than those for conventional or FHA loans.
Conventional Loan Benefits
- Broad Property Flexibility
Can finance primary, secondary, or rental homes—ideal for real estate investors. - Flexible Financing Structure
Multiple programs (e.g., low‑down payment options, Fannie Mae HomeReady, Freddie Mac BorrowSmart) support diverse borrower needs. - Opportunity to Avoid PMI
A 20% down payment eliminates PMI and can unlock better interest rates. - Robust Refinance Options & Market Liquidity
Conventional mortgages offer jumbo loans and investor-friendly terms without VA constraints.
Conventional Loan Drawbacks
- Down Payment Required
Most require at least 3% down; 20% is recommended to avoid PMI. - PMI Requirement
Pays extra until equity reaches 20%, costing 0.3–1.5% of the loan annually. - Stricter Qualification Standards
Higher credit scores (typically 620+), lower DTI, and more documentation are needed. - Potential Closing Costs Can Be Higher
Closing costs tend to be 2–6% of the loan amount.
2025 Rate & Cost Snapshot
| Loan Type | Avg. 30-Year Fixed Rate | Down Payment | PMI/Funding Fee | Credit Score | Property Use |
| VA Loan | ~5.99–6.30% | 0% | 2.15–3.3% funding fee | 580–620+ | Primary residence only |
| Conventional | ~6.79% | 3–20% | PMI 0.3–1.5% (if <20%) | 620+ | Any eligible property |
Who Should Choose Which?
- VA Loans Are Ideal For:
- Qualified veterans or service members with less or no savings
- Buyers with lower credit needing flexibility
- Those planning to use the home as a personal residence
- Qualified veterans or service members with less or no savings
- Conventional Loans Suit:
- Non-veteran homebuyers
- Veterans purchasing second homes or rental properties
- Buyers with strong finances and a desire to avoid PMI
- Non-veteran homebuyers
Hybrid options—like VA plus HELOC or piggyback financing—are smart strategies in high‑cost markets.
Read Next
FAQ
Can I use a VA loan for a second home or rental?
No—VA loans are strictly for primary residences only. Conventional or investment loans are needed for other purposes.
Do VA loans have prepayment penalties?
No—VA loans don’t charge penalties for early payoff. You can refinance, sell, or pay off early with ease .
Is the VA funding fee deductible?
Yes, in most cases, the funding fee qualifies as a deductible mortgage expense—check with your tax preparer for current IRS rules.
Do VA loans require PMI?
No—monthly PMI is not required, though the funding fee replaces it.
Get Expert Financing
- Matched with investor-friendly lenders
- Fast pre-approvals-no W2s required
- Financing options fro rentals, BRRRR, STRs
- Scale your portfolio with confidence
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
