VA loans offer $0 down and no PMI for eligible veterans, while conventional loans require a down payment and PMI if below 20%. Comparing VA and conventional loans reveals VA loans lack official limits with full entitlement, but conventional loans have set limits, $766,550 in standard counties. VA loans often have more lenient credit and DTI requirements.
What Are VA Loans and Conventional Loans?
VA Loans
Backed by the U.S. Department of Veterans Affairs (VA), VA loans are designed to help eligible veterans, active-duty service members, and select military families achieve homeownership. VA loans come with several advantages:
- No Down Payment Required: Most VA loan borrowers can purchase a home without any down payment.
- No Private Mortgage Insurance (PMI): This reduces monthly costs significantly.
- Competitive Interest Rates: VA loans often offer lower interest rates than conventional loans.
- Flexible Credit Requirements: While individual lenders may have credit score minimums, VA loans tend to be more lenient.
Conventional Loans
Conventional loans are not backed by the government and are offered by private lenders such as banks and credit unions. These loans can follow the guidelines set by Fannie Mae and Freddie Mac or be considered non-conforming loans (such as jumbo loans). Key characteristics include:
- Down Payment Flexibility: Conventional loans may require as little as 3% down for first-time buyers, but a 20% down payment is common to avoid PMI.
- PMI Requirement: If your down payment is less than 20%, PMI is typically required.
- More Stringent Credit Requirements: Conventional lenders generally prefer higher credit scores for favorable loan terms.
Key Differences in Borrowing Limits
VA Loan Limits
Since January 2020, VA loans no longer have official loan limits for eligible borrowers with full entitlement. However, lenders may still impose limits based on your credit profile, income, and debt-to-income ratio.
Key Points:
- For borrowers with full entitlement, no loan limit applies if you qualify for the loan amount.
- For those with partial entitlement, VA loan limits often align with Federal Housing Finance Agency (FHFA) conforming loan limits. In 2024, the limit is $766,550 for most counties and $1,149,825 in high-cost areas.
Conventional Loan Limits
Conventional loan limits are regulated by the FHFA. In 2024, these limits are:
- $766,550 in standard counties.
- Up to $1,149,825 in designated high-cost areas.
- Loans exceeding these limits are categorized as jumbo loans, which often come with stricter credit and income requirements.
Borrowing Power: Side-by-Side Comparison
Feature |
VA Loans |
Conventional Loans |
| Loan Limits | No limit with full entitlement | $766,550 in standard counties |
| Down Payment | $0 (in most cases) | Typically 3% to 20% |
| Credit Score Requirement | Varies by lender; often 620+ | Typically 620+ |
| Private Mortgage Insurance (PMI) | Not required | Required if less than 20% down |
| Funding Fee | Yes (varies based on service status and loan amount) | None (unless lender charges fees) |
Examples to Illustrate Borrowing Differences
Example 1: Buying a $500,000 Home
- VA Loan: With full entitlement, you could qualify for a $500,000 VA loan with $0 down and no PMI. A funding fee may apply but can be rolled into the loan amount.
- Conventional Loan: Assuming a 10% down payment ($50,000), you would need PMI, which could add an estimated $150 to $300 per month to your mortgage payment.
Example 2: Buying a $1 Million Home in a High-Cost Area
- VA Loan (Full Entitlement): May qualify for the full $1 million with no down payment if your lender determines you have the financial capacity.
- Conventional Loan: Likely requires a jumbo loan, typically demanding a 10% to 20% down payment plus stricter credit and income requirements.
Factors That Impact Your Borrowing Power
✅ Credit Score: Higher credit scores generally result in better loan terms. VA loans may accept lower scores compared to conventional loans.
✅ Debt-to-Income Ratio (DTI): VA loans are often more lenient with DTI ratios, sometimes allowing ratios above 50%. Conventional loans typically prefer ratios closer to 43%.
✅ Income Stability: Both VA and conventional loans require proof of steady income. However, VA lenders may provide more flexibility for non-traditional income sources such as disability benefits.
✅ Residual Income (VA Loans Only): The VA requires borrowers to have a set amount of residual income (disposable income after expenses) to ensure financial stability.
✅ Property Type: VA loans are limited to primary residences, while conventional loans can finance investment properties, vacation homes, or second homes.
Tips to Maximize Your Borrowing Power
- Check Your Credit Score: Improving your credit score can qualify you for better interest rates and higher loan amounts.
- Pay Down Debt: Lowering your DTI ratio can increase your borrowing capacity.
- Maximize Your VA Entitlement: Ensure you’ve restored full entitlement if you’ve paid off a previous VA loan.
- Explore Lender Options: VA lenders may vary in their requirements, so compare multiple offers for the best terms.
- Consider Pre-Approval: Getting pre-approved gives you a clear understanding of your borrowing power and makes your offer more competitive.
- Use Online Calculators: Mortgage calculators can help estimate monthly payments, interest costs, and overall affordability.
Conclusion
VA loans and conventional loans offer distinct advantages depending on your financial situation and homeownership goals. By understanding the differences in borrowing limits, fees, and requirements, you can confidently navigate the mortgage landscape. Whether you’re a military family exploring VA benefits or a buyer seeking a flexible conventional loan, knowing how much you can borrow empowers you to make informed decisions.