VA Loans provide 100% housing funding to eligible veterans, active service members and surviving spouses. If you qualify for a VA loan, you might assume that it’s a better option than a traditional loan, but that’s not always the case. How do these compare?
VA Loan vs. Traditional Loan
The only difference between a VA and a traditional loan is not military service. When deciding on VA and traditional loans, consider the down payment savings, credit scores, debt loads, and the type of property you are considering financing.
VA loan
VA loans are for military and veteran members and can be used to purchase, build or refinance homes. They are supported by the U.S. Veterans Affairs Agency (VA). This means that the VA will guarantee the loan on behalf of the mortgage lender if the borrower stops paying. VA loans are only available from VA-approved mortgage lenders.
VA loans typically do not require a down payment and tend to have lower interest rates and a more gentle credit standard than traditional loans. They also don’t claim mortgage insurance, but VA loan borrowers pay financing fees.
Traditional loans
Traditional loans are the most popular type of mortgage. In contrast to VA loans, they are not supported by the government. They are available through many types of mortgage providers, including banks and online lenders.
In most cases, traditional loans have stricter financial requirements than VA loans. Additionally, if your down payment is less than 20%, you will need to purchase Private Mortgage Insurance (PMI). However, traditional loans can be used for properties like vacation homes that are not eligible for VA loans.
VA Loans and Traditional Loan Requirements
| appear | Traditional loans | |
|---|---|---|
| Target properties | Main residences only | Primary and Secondary Housing; Investment Real Estate |
| Lowest credit score | There is no official minimum set by VA. Many lenders are looking for over 620 | 620 |
| Maximum DTI ratio | There is no formal maximum set by the VA. Many lenders are looking for under 41% | Usually 36%, but in certain situations it’s up to 50% |
| The lowest down payment | none | 3% |
| Loan restrictions | There are no restrictions unless the borrower defaults on a previous VA loan or owns a home purchased with a previous VA loan | $806,500; $1,209,750 in the 2025 expensive housing market |
| Mortgage insurance | There is no mortgage insurance | If your down payment is less than 20%, you will need to pay mortgage insurance. |
| Fee |
Closure fees and funding fees up to 3.3% for loan principals |
Closure costs |
Here are the key differences between VA loans and traditional loans:
VA Loan vs. Traditional Credit Score
VA loans may have a more relaxed credit threshold compared to traditional loans. This is because VAs do not impose minimum credit score requirements. However, some lenders set their own minimums known as “overlays.” This is often 620. A traditional loan requires a credit score of at least 620.
VA Loan vs. Traditional Down Payment
In most cases, the biggest attraction of a VA loan is the fact that in most cases there are no requirements to place your money. For traditional loans, you need to lower it by at least 3%.
VA Loan to Traditional DTI Ratio
Your debt income (DTI) ratio is the percentage of your total monthly income spent on debt, such as car payments and student loans. Bring $4,500 a month and spend $1,200 of that on debt payments. In this case, the DTI ratio is approximately 27%.
Again, VA does not impose a maximum DTI ratio, but many lenders prefer to look at this figure below 41%. For traditional loans, most lenders require a DTI ratio of less than 36%, while some lenders accept up to 43% or 50%.
VA Loan vs. Traditional Mortgage Insurance
Protect your lender with mortgage defaults while paying for mortgage insurance costs. With traditional loans, if you beat under 20%, you will have to pay these premiums. VA loans do not require mortgage insurance.
VA Loan vs. Traditional Asset Eligibility
You can only use a VA loan to buy a major residence. On the other hand, traditional loans can be used to purchase a major residence, villa, or investment property.
VA loan vs. traditional fees
Both types of loans come with closure fees, including valuation fees and title insurance. VA loans also charge a funding fee of up to 3.3% of the amount you owe. Disabled Veterans who have been paid by persons with disabilities will be exempt from VA funding fees.
VA Loan vs. Traditional Loan Limitations
For VA and traditional loans, your loan limits are heavily dependent on what is approved to borrow. As for traditional loans, you will be able to get loans that are eligible for the loan limit of $806,500 for most of the US in 2025 and $1,209,750 for high-cost regions.
The VA does not set a loan limit, but the lender will check your finances and determine how much you will borrow. If you are eligible, a Jumbo Loan is available. If you have previously used a VA loan and still own a home, or have previously defaulted on a VA loan, you are not fully qualified.
Are VA loans better than traditional loans?
VA loans are not necessarily better or worse than traditional loans. If your military experience qualifies for a VA loan, it may be easier from a financial standpoint. However, if you are eligible for both, here is how to decide between them:
If you choose a VA loan:
- You can get better rates with VA loans. The fees for VA loans are more attractive than traditional loan fees, but depend on your lender and your financial situation. The final calculation should prevent closing costs, including funding fees.
- You are fully qualified and live in a high cost area. VA loan benefits are especially appealing when you live where you can take years to save on your down payment.
If you choose a traditional loan:
- You can create a down payment of at least 20%. In this way, you will not pay the PMI or pay the VA funding fee.
- You want to buy something other than the main residence. You cannot use a VA loan to purchase a villa or investment property.
