The one difference that decides most of this
Conventional and FHA loans both charge you for the privilege of putting less money down. Conventional calls it PMI, private mortgage insurance. FHA calls it MIP, mortgage insurance premium. Either way it is a monthly fee that protects the lender, not you, and you pay it until you are allowed to stop.
A VA loan never charges monthly mortgage insurance. Not at 10 percent down, not at 5 percent, not at zero. That single line is usually worth a few hundred dollars a month, and over thirty years it is often the difference between the three columns above.
In exchange the VA charges a one time funding fee, which almost everyone rolls into the loan. On a first purchase with nothing down that fee is 2.15 percent. If you receive VA disability compensation at 10 percent or higher, you pay no funding fee at all, which removes the only real cost the VA loan has. Our funding fee calculator breaks down every rate and exemption.
How the three loans actually differ
| Feature | VA | Conventional | FHA |
|---|---|---|---|
| Minimum down payment | 0% | 3% to 5% | 3.5% |
| Monthly mortgage insurance | Never | Until 78% LTV | Life of loan under 10% down |
| Upfront fee | 2.15% first use, waived if disabled | None | 1.75% always |
| Credit score in practice | Around 580 to 620 | 620 and up, 740+ for good pricing | 580, or 500 with 10% down |
| Who can use it | Eligible service members and veterans | Anyone who qualifies | Anyone who qualifies |
| Must you live there | Yes | No | Yes |
| Reusable | Yes, entitlement restores on sale | Unlimited | Generally one at a time |
Why FHA loses ground over time
FHA used to be the go to low down payment loan, and its monthly insurance used to fall off once you reached 78 percent of the original value. That changed. On loans with less than 10 percent down, FHA mortgage insurance now runs for the full term. On a thirty year loan that is thirty years of a fee that a VA borrower simply never pays.
FHA borrowers who put at least 10 percent down get out after eleven years, which is better, but reaching 10 percent down defeats much of the reason people choose FHA in the first place.
Why conventional gets more competitive as your down payment grows
Conventional PMI is not permanent. Once your balance reaches 78 percent of the original purchase price, the lender must drop it automatically, and you can usually request removal at 80 percent. PMI pricing is also heavily credit driven, so a borrower with a 780 score pays a fraction of what a 660 borrower pays.
At 20 percent down, conventional charges no mortgage insurance and no upfront fee. That is the scenario where a VA loan, with its funding fee, can actually cost more. Change the down payment field above to 20 percent of the price and watch the columns move.
When you should not use your VA loan
Most VA loan sites will never tell you this, so here it is plainly. There are real situations where the answer is to leave the benefit alone.
- You have 20 percent or more to put down. Conventional charges no mortgage insurance and no upfront fee at that point, while the VA still charges its funding fee. If you are not exempt from the fee, run both columns carefully.
- You are buying a house you plan to rent out. VA loans require you to occupy the home. Conventional is the honest path for a pure investment property.
- You want to save your entitlement for a more expensive home later. Entitlement is finite until you sell and restore it. Using it on a starter home can limit the zero down purchase price on your next one. Our entitlement calculator shows what you would have left.
- The property will not pass a VA appraisal. Fixer uppers with peeling paint, bad roofs, or no working heat can fail the VA minimum property requirements. A conventional or FHA 203k loan may be the only way to buy it.
Outside those cases, if you are eligible and putting less than 20 percent down, the math in the table above will usually point the same direction.
What the calculator assumes
We default all three interest rates to the same number on purpose, so you can see the structural difference between the loans instead of a rate difference. In the real market VA rates often run slightly below conventional. If your lender quoted you different rates, type them in and the comparison updates.
PMI rates come from published mortgage insurance rate cards and vary by credit score and loan to value. They are representative estimates, not quotes. FHA annual MIP uses the current schedule of 0.55 percent above 95 percent loan to value and 0.50 percent at or below, with higher tiers on loans above 726,200 dollars. Upfront fees are financed into the loan, which is what nearly every buyer does, so they do not appear in cash to close.
Lifetime cost of financing means total interest plus total mortgage insurance plus the upfront fee. It deliberately excludes your down payment and closing costs, because that money buys equity or pays third parties rather than being a cost of the loan itself.
Frequently asked questions
Is a VA loan always cheaper than conventional?
No. Below 20 percent down it almost always is, because there is no monthly mortgage insurance. At 20 percent down or more, conventional charges no PMI and no upfront fee, so a VA loan with a funding fee can cost more. If you are exempt from the funding fee, the VA loan is very hard to beat at any down payment.
Can I compare a VA loan to FHA if I qualify for both?
Yes, and you should. Eligible veterans sometimes get steered to FHA by a loan officer who is more familiar with it. For a buyer under 10 percent down, FHA charges 1.75 percent upfront plus mortgage insurance for the life of the loan, while VA charges a one time fee and nothing monthly.
Does PMI ever go away on a conventional loan?
Yes. Your lender must cancel it automatically once the balance reaches 78 percent of the original value, and you can typically request cancellation at 80 percent. FHA mortgage insurance does not work that way for most borrowers.
Do I have to pay the VA funding fee in cash?
No. Almost every buyer rolls it into the loan amount, which is what this calculator assumes. It raises the loan balance slightly rather than the cash you bring to closing.
Why do all three columns start at the same interest rate?
So the comparison isolates the fee and mortgage insurance structure rather than mixing in a rate difference. VA rates commonly run a bit lower in the real market. Enter your actual quoted rates to see your true numbers.
Does a lower credit score change this comparison?
Significantly. Conventional PMI is priced heavily on credit, so a borrower in the low 600s pays much more PMI than one above 760. VA loans do not price mortgage insurance at all, which is why the VA advantage grows as credit scores fall.