Is a VA loan better than a conventional loan?

VA loans are better for qualified veterans who lack a 20% down payment, want to avoid PMI, or have lower credit scores. Conventional loans win if you can put 20% down and have excellent credit — the VA funding fee (2.15%–3.6%) can outweigh the interest savings on higher-priced homes.

How much is the VA funding fee in 2026?

For first-time use with zero down: 2.15% of the loan amount for regular military, 2.4% for Reserve/National Guard. With 5% down: 1.5%. With 10% down+: 1.25%. Disabled veterans (10%+ rating) are exempt from the funding fee entirely.

Do VA loans have higher interest rates than conventional?

VA loans typically have interest rates 0.25%–0.50% lower than comparable conventional loans because the VA guarantees 25% of the loan, reducing lender risk. In May 2026, VA rates averaged about 6.25% vs 6.67% for conventional 30-year fixed loans.

VA Loan vs Conventional: Which Is Better for Veterans in 2026?

VA loans offer zero down, no PMI, and rates about 0.4% lower than conventional. But they come with a funding fee of 2.15%–3.6% that gets rolled into the loan. Here's the exact math on when each wins.

Why VA Loans Win (Most Cases)

Zero down payment. Conventional requires 3% minimum (3.5% for FHA). VA is the only loan program with true 0% down.
No PMI. With less than 20% down on conventional, you pay 0.5%–1% of the loan annually in PMI. On a $400,000 loan, that's $165–$330/month saved.
Lower rates. VA rates averaged ~6.25% vs 6.67% conventional in May 2026 (Freddie Mac PMMS). On $400,000, that's ~$105/month in interest savings.
No minimum credit score. Most VA lenders want 620+, but there's no official floor. Conventional jumbo often requires 700+.

The Funding Fee Changes Everything

The VA funding fee is the tradeoff. At 0% down (first use), the fee is 2.15% of the loan amount. On a $400,000 home at the VA rate (6.25%) vs conventional (6.67%) with 5% down:

Metric	VA Loan	Conventional
Down payment	$0	$20,000 (5%)
Loan amount	$408,600	$380,000
Interest rate	6.25%	6.67%
Monthly payment	$2,515	$2,446
Plus PMI	+$0	+$158
Total monthly	$2,515	$2,604

Assumes $400,000 home, 5% conventional down, 30-year fixed. PMI at 0.5% annually. VA funding fee rolled in. Disabled veterans (10%+) exempt from funding fee — VA wins by even more.

The VA borrower pays $89 less per month and kept $20,000 in the bank. But the VA loan has a $408,600 balance vs $380,000 because the funding fee was rolled in. Over 5 years, the VA borrower saves $5,340 in payments and has $20,000 more liquidity — even before the zero-down advantage on future appreciation.

When Conventional Wins

Conventional beats VA in specific scenarios:

20%+ down. No PMI, no funding fee. Conventional becomes cheaper than VA because the rate gap narrows with higher down payments.
Jumbo loans over $766,550 (2026 limit). VA has limits in most counties. Conventional jumbo is widely available above the conforming limit.
Investment/second homes. VA loans require owner occupancy. No exceptions.
Sub-620 credit with no disability exemption. The funding fee on a borderline-credit VA loan can feel like wasted premium if the rates aren't much better.

The Verdict by Scenario

First-time buyer with no savings: VA, unquestionably. $0 down vs $12,000+ for conventional minimum.
Disabled veteran (10%+ rating): VA, unquestionably. Funding fee waived — you get the lower rate + no PMI + $0 down with zero fee penalty.
20% down, excellent credit, buying < $766K: Conventional wins by about $40–60/month.
5%–10% down as a veteran: VA wins on payment and liquidity. Conventional only wins if rates drop significantly and you refinance out of VA before year 5.

Run the numbers for your specific down payment and rate — the right answer depends on your price range and how long you'll keep the home. Use our mortgage calculator to compare both scenarios side by side.

Compare VA vs Conventional →

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