Is a VA Loan Considered a Conventional Loan?

Homeownership is a significant financial undertaking, and understanding loan options is crucial. The mortgage landscape offers a range of products with specific features and eligibility criteria. Exploring these helps individuals identify the most suitable path toward purchasing a home.

Understanding VA Loans

A VA loan is a mortgage option designed to help eligible service members, veterans, and surviving spouses achieve homeownership. These loans are backed by the U.S. Department of Veterans Affairs, which guarantees private lenders against potential losses. This backing allows lenders to offer more favorable terms.

VA loans often have no down payment requirement for most eligible borrowers. They also do not require private mortgage insurance (PMI), a common expense for conventional loans when a borrower puts down less than 20%. This can lead to substantial monthly savings.

While VA loans do not have PMI, they typically include a one-time VA funding fee, which helps offset program costs. This fee’s percentage can vary based on factors such as loan purpose, down payment size, and whether it is the first or subsequent use of the benefit, generally ranging from 0.5% to 3.3%. Certain individuals, such as those receiving VA compensation for service-connected disabilities, may be exempt.

Eligibility for a VA loan hinges on specific service requirements, and borrowers must obtain a Certificate of Eligibility (COE). While the VA sets no minimum credit score, most lenders typically look for a score of at least 580 to 620. VA loan limits are generally aligned with conforming loan limits set by the Federal Housing Finance Agency (FHFA), reaching $806,500 in most areas for 2025, and up to $1,209,750 in high-cost areas.

Understanding Conventional Loans

Conventional loans are mortgages not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA), VA, or USDA. Private lenders, including banks, credit unions, and mortgage companies, originate and back these loans. They are the most common type of mortgage and are often acquired by government-sponsored enterprises like Fannie Mae and Freddie Mac.

A down payment is typically required for conventional loans, with minimums often starting as low as 3%, though 5% to 20% down is common. If the down payment is less than 20% of the home’s purchase price, borrowers generally pay private mortgage insurance (PMI). PMI protects the lender in case of default and typically costs a percentage of the loan amount annually. This insurance can usually be removed once the borrower reaches 20% equity in the home.

Conventional loans typically have stricter qualification criteria, often requiring a minimum credit score of at least 620. Lenders also assess a borrower’s debt-to-income (DTI) ratio, which compares total monthly debt payments to gross monthly income. Conventional loans must adhere to conforming loan limits, set annually by the FHFA, which for 2025 are $806,500 in most parts of the U.S., increasing to $1,209,750 in high-cost areas. Various loan terms are available, with 15-year and 30-year fixed-rate options being common.

Key Differences Between VA and Conventional Loans

A fundamental distinction between VA and conventional loans lies in their backing and purpose. VA loans are a benefit for eligible service members, veterans, and surviving spouses, guaranteed by the U.S. Department of Veterans Affairs, which reduces risk for lenders. Conversely, conventional loans are not government-insured and are backed solely by private lenders, making their eligibility requirements generally stricter.

Another significant difference concerns down payment requirements. VA loans often allow eligible borrowers to purchase a home with no down payment, a substantial advantage for many. Conventional loans, however, almost always require a down payment, typically ranging from 3% to 20% of the purchase price. This difference directly impacts the upfront cash needed to secure a mortgage.

Mortgage insurance also serves as a clear differentiator. VA loans do not require private mortgage insurance (PMI), which can result in considerable monthly savings for borrowers. Conventional loans, in contrast, mandate PMI if the borrower’s down payment is less than 20%, adding an ongoing cost to the monthly mortgage payment until sufficient equity is built. While VA loans do not have PMI, they include a one-time VA funding fee, which is distinct from monthly insurance premiums and can often be financed into the loan amount.

Eligibility criteria vary considerably. VA loans are restricted to individuals with specific military service or spousal status who obtain a Certificate of Eligibility. Conventional loans have broader eligibility, primarily focusing on a borrower’s creditworthiness, income stability, and debt-to-income ratio. Furthermore, VA loans are generally for primary residences, while conventional loans offer more flexibility, allowing financing for primary homes, vacation properties, or investment properties.