Is a VA Loan a Conventional Loan?

When it comes to home loans, VA loans and conventional loans are two of the most common options for buyers. But there can be some confusion around whether VA loans are actually a type of conventional loan. The short answer is no – VA loans and conventional loans are separate loan types with different requirements and benefits.

What is a VA Loan?

First, let’s clarify what makes a VA loan unique. VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. This means the VA provides certain protections and guarantees to lenders who offer these loans.

The main benefit of VA loans is that they require little to no down payment – usually 0% down. Borrowers also don’t need to pay for private mortgage insurance Instead, a one-time VA funding fee is charged, which can be financed into the loan.

VA loans are only available to qualifying military members and veterans. Eligible borrowers include:

Active duty service members
Veterans
National Guard and Reserve members
Surviving spouses of service members who died in the line of duty

These military borrowers can use VA loans to purchase or refinance a primary residence The home must meet VA property requirements

What is a Conventional Loan?

Conventional loans are simply loans that are not backed by a government agency like the VA or FHA. The loan standards are set by private lenders like banks and credit unions.

Conventional loans usually require a down payment of at least 3-20% And if a borrower puts down less than 20%, private mortgage insurance is typically required.

Conventional loans are available to all qualified borrowers – not just military or veterans. They can be used to purchase or refinance primary residences, second homes, or investment properties. The property just needs to meet the lender’s requirements.

Key Differences Between VA and Conventional Loans

While VA loans offer some attractive perks for military borrowers, conventional loans have benefits too. Here’s a quick rundown of the key differences:

Down payment

VA loans – No down payment required in most cases
Conventional loans – Typically 3-20% down

Mortgage insurance

VA loans – No mortgage insurance, but a VA funding fee is charged
Conventional loans – Private mortgage insurance required if less than 20% down

Eligible borrowers

VA loans – For military members, veterans, and surviving spouses
Conventional loans – Available to all qualified borrowers

Property types

VA loans – For primary residences
Conventional loans – Can be used for primary homes, second homes, or investment properties

Credit score requirements

VA loans – No set minimum, but many lenders want 620+
Conventional loans – Minimum of 620 is common

Debt-to-income ratio

VA loans – No set maximum, but over 41% gets more scrutiny
Conventional loans – Ideal ratio is under 36%

How to Choose Between VA and Conventional

As you can see, VA loans and conventional loans serve different needs. Here are a few tips on choosing between them:

If you’re eligible for a VA loan, check if it makes financial sense. Crunch the numbers on a VA loan versus a conventional loan with 5-20% down.
Aim for 20% down on a conventional loan to avoid mortgage insurance.
Conventional loans allow more flexibility. Choose this route if you want a second home or investment property.
VA loans offer an easier path for those with lower credit scores below 620.
Look at total monthly costs, not just down payment. VA loans can compete with conventional loans in overall affordability.
Get rate quotes for both loan types from multiple lenders. Compare costs and programs.

Either a VA loan or conventional loan can be a great option – it just depends on your financial situation. As you can see, VA loans are not a type of conventional loan. They are two distinct loan products serving different borrowers.

Frequency of Entities

VA loans: 18
Conventional loans: 18
Down payment: 6
Mortgage insurance: 4
Military members: 3
Veterans: 3
Surviving spouses: 2
Primary residence: 3
Second home: 1
Investment property: 1
Credit score: 2
Debt-to-income ratio: 2

Comparing VA Loans Vs. Conventional Loans

Your Credit Profile Excellent 720+ Good 660-719 Avg. 620-659 Below Avg. 580-619 Poor ≤ 579

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Mortgage Requirements For VA Loans Vs. Conventional Loans

Mortgage Qualifications	VA Loan	Conventional Loan
Credit Score	Usually 580 – 620	620
Down Payment	0%	Starting at 3%
Debt-To-Income Ratio (DTI)	None, but preferred below 41%	Maximum of 50%
Private Mortgage Insurance (PMI)	Not required	Required with a down payment less than 20%
Property Type	Primary residence	Primary residence, secondary home, or investment property
Special Borrower Eligibility	Need a Certificate of Eligibility (COE)	No special eligibility requirements
Additional Fees	VA funding fee along with other potential fees, like loan origination	Varies according to lender, usually involves an origination fee

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VA Loans vs Conventional Loans: Which Mortgage Option is Best for You?

FAQ

What is the difference between a VA loan and a conventional loan?

Here’s why a VA loan could be a smarter option for you financially than a conventional mortgage: VA loans don’t require a down payment. If you have full entitlement to your VA benefits, you won’t have to spend months saving up to cover a down payment. VA loans don’t require mortgage insurance.

What type of loan is a VA loan?

A VA loan is a mortgage offered through a U.S. Department of Veterans Affairs program.

What loans are considered conventional?

A conventional loan is any mortgage loan that is not insured or guaranteed by the government (such as under Federal Housing Administration, Department of Veterans Affairs, or Department of Agriculture loan programs). Conventional loans can be conforming or non-conforming.

Is a VA loan a FHA loan?

FHA loans are available to any potential borrower who meets the qualifying criteria, while VA loans are only available to active-duty military, veterans and their surviving spouses. You can get a VA loan for no money down, but FHA loans require a down payment of at least 3.5%.

What is a VA loan?

Here’s an explanation for VA loans are government-backed loans that help veterans, active-duty service members and surviving spouses buy or build a home. Conventional loans are backed by private sector lenders, such as banks, credit unions and online lending companies.

Can you get a VA loan with a conventional mortgage?

While most mortgage companies offer conventional home loans, only VA-approved lenders can provide VA-backed financing. Most mortgage lenders offer conventional loans such as fixed-rate and adjustable-rate mortgages (ARMs). Banks, credit unions, and mortgage companies, for example, typically cater to conventional buyers.

Are VA loan rates lower than conventional mortgage rates?

Interest rates on VA loans are typically lower than conventional mortgage rates. One reason many veterans choose the VA loan program is to secure lower interest rates on their mortgages. VA loan rates are often lower than conventional loan rates with the same loan amounts and terms.