Are VA rates lower than conventional rates?
VA rates are often competitive, but they are not automatically lower for every borrower or every lender. The lender, not VA, sets the rate and points. A fair comparison also counts the VA funding fee and VA's lack of monthly mortgage insurance against conventional pricing, down payment and PMI.
Educational answer from Mortgage Expert. Mortgage Expert's licensed loan originator is Shahram Sondi, Florida mortgage broker, Certified Mortgage Advisor™, NMLS 186790. Sources checked .
How it works
Why the rate alone does not settle it
The CFPB says rates can differ a lot by loan type, and that VA, USDA and FHA loans can offer lower rates if you qualify. That is a "can," not a promise. VA says the lender sets the rate, discount points and closing costs, and these can vary from lender to lender.
A rate is also tied to a price. A quote with a lower rate may carry more points. A quote with a higher rate may come with a lender credit. So compare quotes with the same points or credit.
The costs that sit outside the rate
VA funding fee. Unless you are exempt, you pay a one-time fee. For a first-use purchase it is 2.15% of the loan with less than 5% down, 1.5% with 5% to under 10% down, and 1.25% with 10% or more down. You can pay it at closing or add it to the loan.
Mortgage insurance. VA loans have no monthly mortgage insurance. A conventional loan needs private mortgage insurance (PMI) when the loan is above 80% of the home's value. PMI can be canceled later under federal rules once the balance falls far enough.
Down payment. With full entitlement, VA needs none if the price does not exceed the appraised value. A conventional loan usually needs some money down.
How to compare fairly
Get quotes on the same day, for the same home, with the same down payment and lock period. Ask each lender for the same points or credit. Then look at the rate and APR, the points, the funding fee or PMI, the full monthly payment, the cash you need and how long you expect to keep the loan.
Lining up two quotes on a $400,000 home
Illustrative example. This is not a real borrower, offer or quote. Points are an assumption; rates and PMI cost depend on the full file and the day you lock.
A buyer using VA for the first time (not exempt from the funding fee) compares VA and conventional quotes on a $400,000 home, putting 10% down either way. The buyer asks both lenders for quotes at 0.5 point.
| Item | VA | Conventional |
|---|---|---|
| Down payment (10%) | $40,000 | $40,000 |
| Base loan | $360,000 | $360,000 |
| Funding fee (1.25%), added to the loan | $4,500 | None |
| Starting loan amount | $364,500 | $360,000 |
| 0.5 point | $1,822.50 | $1,800 |
| Monthly mortgage insurance | None | PMI (LTV is 90%) |
The math, step by step
- Down payment: $400,000 × 10% = $40,000. Base loan: $400,000 − $40,000 = $360,000.
- VA funding fee: $360,000 × 1.25% = $4,500. Starting VA loan: $360,000 + $4,500 = $364,500.
- Points on the VA quote: $364,500 × 0.5% = $1,822.50.
- Points on the conventional quote: $360,000 × 0.5% = $1,800.
- Conventional LTV: $360,000 ÷ $400,000 = 90%, which is above 80%, so PMI applies.
Takeaway: Once points are matched, the rate on each quote can be compared fairly. The decision still turns on the $4,500 funding fee versus PMI, and on how long the buyer expects to keep the loan.
Easy things to get wrong
- If you are exempt from the funding fee, for example because you receive VA disability compensation, the VA side of the comparison changes a lot. Confirm your status early.
- A quote with a lower rate and two points is not automatically cheaper than a quote with a higher rate and no points. Compare the extra upfront cost with savings over the time you expect to keep the loan.
- VA requires you to live in the home. For a rental or second home, a VA loan does not fit, so conventional is one of the options to compare.
- Rates move daily. Quotes from different days do not compare well.
What to do next
Look at current VA rate options, then ask for a VA quote and a conventional quote on the same day with the same down payment and points.
Weighing a VA quote against a conventional one? Shahram Sondi can line them up with the same home, down payment and points so the comparison is fair.
Check the sources
- CFPB: 7 factors that determine your mortgage interest rate (loan type)
- CFPB: explore interest rates (VA, USDA, FHA can offer lower rates)
- CFPB: discount points and lender credits
- VA: loan fees (lender sets rate, points and closing costs)
- VA.gov: VA funding fee and closing costs
- VA.gov: VA purchase loan
- Fannie Mae Selling Guide B7-1-01: mortgage insurance above 80% LTV
Sources checked . Program guidance and lender requirements can change.
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Educational only. VA guidelines, lender overlays, rates, fees, and underwriting requirements can change. Final eligibility depends on full underwriting review. Mortgage Expert, Inc. is not affiliated with the VA, HUD, or any government agency.
