VA Loan vs Conventional Loan: The Funding Fee, PMI and 30-Year Cost on a $400,000 Home
Michael Whitman
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Trading since 2017, full-time since 2020
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YouTube creator, 137K subscribers
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Published 2026-11-07
A VA loan is a VA-backed mortgage for eligible service members and veterans with no down payment and no monthly mortgage insurance, but a one-time funding fee; a conventional loan has no government backing and charges PMI below 20% down. The median 2025 VA purchase loan had a 100% loan-to-value ratio.
A VA loan is a mortgage backed by the Department of Veterans Affairs for eligible service members, veterans and surviving spouses: no down payment and no monthly mortgage insurance, paid for with a one-time funding fee. A conventional loan has no government guarantee, so a buyer with less than 20% down pays private mortgage insurance (PMI) every month until enough of the loan is repaid.
Most comparisons stop at that trade. This one prices it on a $400,000 house at today’s rate, then checks it against 330,192 VA and 1,984,375 conventional purchase loans in 2025 federal mortgage data.
What each one is
A VA loan is made by a private lender, but the VA guarantees part of it: with full entitlement, up to 25% of a loan above $144,000. That guarantee is why the lender asks for no down payment as long as the price does not exceed the appraised value, and why there is no PMI. The VA says that with full entitlement there is no VA loan limit, though the lender still decides how much you can afford. You must plan to live in the home. Eligibility is shown on a Certificate of Eligibility (COE).
A conventional loan is any mortgage without a government guarantee, often one sold to Fannie Mae or Freddie Mac. To be “conforming” it must fit the 2026 limit FHFA set: $832,750 for a one-unit home in most of the country, up to $1,249,125 in the highest-cost areas. Fannie Mae buys loans on principal residences, second homes and investment properties. With less than 20% down, the lender requires PMI, which the CFPB notes protects the lender, not you.
Where they differ
| VA loan | Conventional loan | |
|---|---|---|
| Minimum down payment | none, up to the appraised value | depends on the program; PMI below 20% |
| Mortgage insurance | none monthly; one-time funding fee | PMI until the balance falls to 78% of the original value |
| Upfront fee (first use, under 5% down) | 2.15% of the loan, can be financed | none of this kind |
| Who can use it | eligible service members, veterans, some surviving spouses | anyone who qualifies |
| Property | home you will live in | principal residence, second home or rental |
| Credit score floor | none set by VA (lenders set their own) | 620 on a manually underwritten fixed-rate Fannie Mae loan |
| DTI test | 41% standard plus a residual income test | 36% manual, up to 45%, 50% automated (Fannie Mae) |
| Median 30-year fixed rate, 2025 purchase loans (HMDA) | 6.125% | 6.625% |
The funding fee, from VA.gov (rates effective 7 Apr 2023, page updated 5 Oct 2026):
| Down payment | First use | After first use |
|---|---|---|
| Less than 5% | 2.15% | 3.3% |
| 5% or more | 1.5% | 1.5% |
| 10% or more | 1.25% | 1.25% |
The fee is a share of the loan, not the price, and VA.gov says you can either finance it into the loan or pay it in full at closing. It is waived for veterans receiving, or eligible for, VA compensation for a service-connected disability, for surviving spouses receiving Dependency and Indemnity Compensation, for service members with a pre-discharge rating before closing, and for active-duty Purple Heart recipients. For a waived borrower, the VA side of every comparison below gets cheaper by the whole fee.
PMI ends on a schedule. Under the Homeowners Protection Act, as the CFPB explains it, you can ask the servicer to cancel PMI once the balance is scheduled to reach 80% of the home’s original value, and it ends automatically at 78% if you are current, or at the loan’s midpoint at the latest (15 years on a 30-year loan). A VA loan has nothing to cancel.
The residual income rule
VA underwriting runs two tests, and the second one is the one most guides skip. Under 38 CFR 36.4340 the debt-to-income standard is 41%. Residual income is what is left of take-home pay each month after the housing costs (including maintenance and utilities) and other debts; it is the money for everyday living, and it must clear a table set by region and family size. For loans of $80,000 or more:
| Family size | Northeast | Midwest | South | West |
|---|---|---|---|---|
| 1 | $450 | $441 | $441 | $491 |
| 2 | $755 | $738 | $738 | $823 |
| 3 | $909 | $889 | $889 | $990 |
| 4 | $1,025 | $1,003 | $1,003 | $1,117 |
| 5 | $1,062 | $1,039 | $1,039 | $1,158 |
Add $80 for each extra member up to seven. For an active-duty service member or military retiree using a nearby base’s facilities, the figures drop by at least 5%. The rule that matters most: a DTI above 41% needs no second-level review or written justification if residual income beats the table by at least 20%.
Take a family of four in Washington State (West: $1,117; 120% of it is $1,340.40).
They earn $9,000 a month gross and an assumed $7,200 after tax. With the $400,000 VA loan below ($2,768.00 principal and interest) plus an assumed $550 of tax and insurance, $500 of other debts and $400 for utilities and upkeep, residual income is $2,982.00. Their DTI is 42.4%, over 41%, yet residual income is more than twice the table, so the file does not need the extra review.
A worked example: $400,000 at 7.18%
The rate for every case is Freddie Mac’s weekly 30-year average for 5 Nov 2026, 7.18%. Using one rate isolates the fee, PMI and down payment; it also flatters the conventional loan, since VA rates ran lower in 2025. PMI is priced by the insurer on your credit and down payment and appears on your Loan Estimate, so 0.6% a year of the loan is an example rate, with 0.3% and 1.0% shown below for range. Taxes, insurance and closing costs are left out.
| $400,000 home, 30 years at 7.18% | Cash down | Fee financed | Loan | Principal + interest | PMI | Total paid over 30 years |
|---|---|---|---|---|---|---|
| VA, 0% down, first use | $0 | $8,600 | $408,600 | $2,768.00 | none | $996,479.54 |
| VA, 0% down, later use | $0 | $13,200 | $413,200 | $2,799.16 | none | $1,007,697.86 |
| VA, 5% down, first use | $20,000 | $5,700 | $385,700 | $2,612.87 | none | $960,631.81 |
| Conventional, 5% down | $20,000 | none | $380,000 | $2,574.25 | $190.00 a month for 144 months, $27,360 | $974,090.85 |
| Conventional, 20% down | $80,000 | none | $320,000 | $2,167.79 | none | $860,404.93 |
“Total paid” is the cash down plus 360 payments plus PMI, on the unrounded payment (a few cents off the rounded payment times 360). PMI is the example rate times the original loan, divided by 12, and runs until the scheduled balance first reaches 78% of $400,000, in month 144. If you request cancellation at 80%, in month 132, the PMI total falls to $25,080.
What the table shows:
- Same down payment, VA wins. At 5% down the VA loan costs $13,459.04 less over 30 years: a $5,700 fee spread over the loan against $27,360 of PMI. With the cheapest example PMI, 0.3% ($95 a month, $13,680 in all), the two come out within $220.96 of each other, conventional slightly ahead.
- Zero down is about cash, not cost. The VA 0%-down loan’s first payment is $2,768.00 against $2,764.25 for conventional with 5% down and PMI, only $3.75 apart, and it needs $20,000 less at closing. Over 30 years it costs $22,388.69 more, because you borrow the $20,000 and the fee and pay 7.18% on them.
- The later-use fee hurts. At 3.3% the fee is $13,200, and the 0%-down total rises to $1,007,697.86.
- The rate gap matters more than either fee. If the VA loan priced 0.5 points lower, the gap in the 2025 medians, its 0%-down payment would be $2,631.19 and the 30-year total $947,227.47, less than conventional with 5% down.
The original data
What VA and conventional buyers actually did in 2025. The Home Mortgage Disclosure Act file for 2025 lists nearly every mortgage application in the country. We kept first-lien, owner-occupied home-purchase loans on 1-4 unit homes, left out business-purpose, reverse and open-end loans, and compared the loan types. Each share below uses the loans that report that field; the denial rate is denials divided by denials plus loans made.
| 2025 home-purchase loans | VA | Conventional |
|---|---|---|
| Loans made | 330,192 | 1,984,375 |
| Median loan | $355,000 | $335,000 |
| Median loan-to-value | 100% | 80% |
| Loan-to-value above 95% | 75.3% | 12.0% |
| Loan-to-value of 80% or less (20%+ down) | 10.6% | 54.2% |
| DTI above 41% | 59.3% | 38.0% |
| DTI of 50% or more | 30.1% | 1.2% |
| Median rate, 30-year fixed | 6.125% | 6.625% |
| Applications denied | 8.4% (30,164) | 15.8% (371,510) |
Most VA borrowers use the zero-down feature: 70.7% of VA loans had a loan-to-value of 100% or more. That is where a zero-down loan starts, and it goes above 100% when the funding fee is financed on top of the full price.
VA files carry far more debt per dollar of income: almost a third were at 50% DTI or higher, a level conventional loans almost never reach because 50% is Fannie Mae’s automated ceiling. That is the residual income test at work. VA rates were half a point lower at the median. The pools differ (credit, location and loan size are not held equal), so treat the gaps as what happened, not as the price any one borrower will get.
The denial reasons differ as well. Of 30,164 VA denials, 33.2% cited debt-to-income, 27.0% credit history and 15.0% an incomplete application; of 371,510 conventional denials, 40.1% cited credit history, 38.0% DTI and 18.5% insufficient cash, more than twice the VA’s 8.3%, which fits a loan that needs no down payment.
Download the data: VA vs conventional, 2025 and the $400,000 worked example, reusable with a credit and a link back under the site license.
| Dataset | Covers | Pages citing it | Download |
|---|---|---|---|
| VA vs conventional home-purchase loans, HMDA 2025: down payment, DTI, rate and denial rate | First-lien, owner-occupied, 1-4 unit home-purchase loans reported under HMDA for 2025, nationwide: 1,984,375 conventional, 635,840 FHA, 330,192 VA and 33,874 USDA loans made | 1 | VA vs conventional, 2025 (CSV) |
| VA vs conventional on a $400,000 home at 7.18%, 30-year worked example | VA 0% down (first and later use), VA 5% down, conventional 5% down with example PMI rates of 0.3%, 0.6% and 1.0%, and conventional 20% down | 0 | Worked example (CSV) |
Which one to use: VA or conventional?
Use the VA loan when you are eligible, will live in the home and have less than 20% to put down. At the same down payment it beat conventional in every case above except the cheapest PMI, and that was before its usually lower rate. If you are exempt from the funding fee, the case is stronger still.
Use the conventional loan when you can put 20% down and the rates are close. With no PMI to pay, the funding fee is pure cost; at 20% down the conventional loan has nothing to offset it. It is also the only choice of the two for a second home or a rental.
Look hard at conventional when you would pay the 3.3% repeat-use fee and plan to sell within a few years. A financed fee is spread over 30 years on paper, but most of it is still in the balance you repay if you sell early, while PMI simply stops when you do.
Decide on cash when the totals are close. Zero down costs more over 30 years than 5% down but keeps $20,000 in the bank, which matters most to a buyer with no emergency fund.
When it fails
The VA loan fails when the home is not your residence. A purchase loan requires you to live in it; a second home or investment property needs another loan.
The VA loan fails on a short stay with a repeat-use fee. $13,200 on the worked example is gone if you sell in year two, while PMI on the same loan would have cost about $4,560 by then at the example rate.
The conventional loan fails when PMI is expensive. At an example 1.0% a year, PMI on $380,000 is $3,800 a year ($316.67 a month) and $45,600 over the 12 years to month 144, and the conventional total climbs to $992,330.85.
Zero down fails when prices fall. At a 100% loan-to-value, with the fee financed, a small price drop leaves you owing more than the home is worth, and selling then costs cash. 70.7% of VA purchase loans in 2025 started there; the housing market page shows how far US prices fell from 2006 to 2012.
Questions people ask
Is a VA loan always cheaper than a conventional loan?
No. On the worked example it was cheaper at the same down payment, but with excellent credit and 0.3% PMI the two were within $221, and against 20% down conventional the funding fee has nothing to offset.
Can I use a VA loan more than once?
Yes. Later use costs a 3.3% funding fee with under 5% down, against 2.15% the first time; with 5% or more down, the fee is the same 1.5% or 1.25% either way.
What credit score do I need for a VA loan?
VA sets no minimum, though some lenders set their own. Conventional loans run through Fannie Mae need 620 on a manually underwritten fixed-rate file.
Related
If you have not started yet, how to get mortgage pre-approval covers the documents, the DTI limits and why 2025 applications were denied. The mortgage payment calculator runs either loan on your own price and rate. Interest rates explains the price of money behind the 30-year rate, and the housing market shows the price and rate record since 1987. Owners borrowing against a home rather than buying one should read HELOC vs home equity loan.
This page is educational, not financial advice. Test every idea on your own charts before risking money.