VA loans offer zero down payment and no monthly mortgage insurance for eligible veterans. FHA loans accept credit scores as low as 580 with 3.5% down but charge permanent MIP. Conventional loans require higher credit scores but let you drop PMI at 20% equity and finance investment properties.
What Is a VA Loan?
VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. They are available exclusively to veterans, active-duty service members, and eligible surviving spouses. The VA guarantee allows lenders to offer zero down payment, no monthly mortgage insurance, and competitive interest rates.
Instead of monthly mortgage insurance, VA loans charge a one-time VA funding fee (1.25%–3.3% of the loan amount depending on down payment and whether it's your first VA loan). Disabled veterans are exempt from this fee entirely. The funding fee can be rolled into the loan balance.
What Is an FHA Loan?
FHA loans are government-backed mortgages insured by the Federal Housing Administration. They are designed for borrowers with lower credit scores or limited savings. FHA loans require just 3.5% down with a 580+ credit score and accept down payments as low as 10% with scores of 500–579.
FHA loans charge an upfront mortgage insurance premium (UFMIP) of 1.75% plus annual MIP of 0.55%. For loans with less than 10% down, MIP lasts the entire life of the loan. With 10%+ down, MIP drops after 11 years.
What Is a Conventional Loan?
Conventional loans are not government-backed. They follow guidelines set by Fannie Mae and Freddie Mac. They typically require a credit score of 620+ (680+ for the best rates) and a minimum down payment of 3%–5%. PMI is required below 20% down but cancels automatically once you reach 20% equity.
Conventional loans offer the most flexibility: you can use them for primary residences, second homes, and investment properties. They have no upfront mortgage insurance premium and generally offer the lowest rates for borrowers with strong credit.
Side-by-Side Comparison
| Feature | VA Loan | FHA Loan | Conventional |
|---|---|---|---|
| Down Payment | 0% | 3.5% | 3–20% |
| Credit Score Minimum | 580–620 | 580 | 620–680 |
| Mortgage Insurance | VA Funding Fee (one-time) | MIP (life of loan) | PMI (removable at 80% LTV) |
| Loan Limits | County limits (no max with full entitlement) | County limits | Conforming limits |
| Eligibility | Veterans / active military only | Any borrower | Any borrower |
| Interest Rates | Typically lowest | Moderate | Market rate |
| Closing Costs | Seller can pay all | Seller up to 6% | Seller up to 3–6% |
| Property Types | Primary residence only | Primary residence only | Primary, second home, investment |
When to Choose Each Loan Type
- You're a veteran or active-duty service member
- You want zero down payment
- You want competitive interest rates with no monthly mortgage insurance
- You're buying a primary residence
- Your credit score is 580–619
- You can't afford a large down payment
- You're a first-time buyer who doesn't qualify for VA
- You have a higher debt-to-income ratio (up to 50%)
- Your credit score is 680+ and you want the best rates
- You can put 20% down to avoid PMI entirely
- You're buying an investment property or second home
- You want maximum flexibility and no upfront fees
Real-World Example
VA Loan (0% down): Loan $400,000 + $8,600 funding fee (2.15%) rolled in = $408,600. Monthly P&I: ~$2,584. No monthly mortgage insurance. Total monthly: ~$2,584.
FHA (3.5% down): Loan $386,000 + $6,755 UFMIP = $392,755. Monthly P&I: ~$2,484 + $177/mo MIP = $2,661. MIP lasts the life of the loan.
Conventional (5% down): Loan $380,000. Monthly P&I: ~$2,403 + $190/mo PMI = $2,593. PMI drops at 20% equity (~year 8). After PMI drops: $2,403/mo.
Over 30 years, the VA loan saves roughly $45,000+ compared to FHA due to no monthly insurance and typically lower rates.
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Frequently Asked Questions
Can I get a VA loan with bad credit?
The VA doesn't set a minimum credit score, but most lenders require 580–620. VA loans are more forgiving than conventional loans for borrowers with lower credit, and the lack of a down payment requirement offsets some risk for lenders.
Is the VA funding fee worth it compared to PMI or MIP?
For most veterans, yes. The VA funding fee is a one-time cost (1.25%–3.3% depending on down payment and usage) that can be rolled into the loan. Unlike FHA MIP which lasts the life of the loan or conventional PMI which adds monthly costs, the funding fee has no recurring payments. Disabled veterans are exempt from the funding fee entirely.
Can I use a VA loan more than once?
Yes. VA loan entitlement can be reused after paying off a previous VA loan or selling the home. You can even have two VA loans simultaneously if you have remaining entitlement. The funding fee increases slightly for subsequent use (3.3% vs 2.15% with zero down).
Which loan type has the lowest monthly payment?
VA loans typically have the lowest monthly payment because they require zero down payment and no monthly mortgage insurance. FHA loans come next with low down payments but add monthly MIP. Conventional loans can have the lowest long-term cost if you put 20% down and avoid PMI entirely.
Can I switch from an FHA or conventional loan to a VA loan?
Yes, if you're an eligible veteran. A VA Interest Rate Reduction Refinance Loan (IRRRL) lets you refinance an existing VA loan with minimal paperwork. To refinance from FHA or conventional to VA, you'd use a VA cash-out refinance, which requires a new appraisal but eliminates your MIP or PMI.