VA 0% Down vs. Conventional 5% Down - I Compared Both for My $340,000 Military Purchase

I’m active duty Air Force with 8 years of service, and when I started house hunting in September 2024, I assumed my VA loan benefit was automatically the best option. Zero down payment, no PMI, favorable rates for military—what could be better than that?

Then I ran the actual numbers comparing VA 0% down versus conventional 5% down for my $340,000 home purchase in San Antonio, and the results surprised me. VA saved me money in some scenarios but not others, depending on how long I planned to keep the home and whether I factored in opportunity cost of the down payment.

Here’s my detailed comparison with real numbers, real closing costs, and the factors that ultimately drove my decision.

My Military Homebuying Profile

Before comparing programs, here’s my situation:

• Purchase price: $340,000 (4-bedroom home near Lackland AFB)
• Credit score: 712 middle score (fairly strong)
• Annual income: $84,000 base pay + allowances
• Down payment savings: $21,000 available (could do 5-6% down if needed)
• Debt-to-income ratio: $450 car payment + $0 other debts = 5.4% before mortgage
• Military status: Active duty, 8 years service, no VA loan entitlement used
• Residency plans: Likely stationed here 3-5 years before next PCS

I qualified for both VA and conventional loans easily. The question was whether VA’s zero-down benefit outweighed its unique costs and whether I should use my down payment savings elsewhere.

VA 0% Down Analysis

Down Payment: $0

This was the headline benefit—I could keep all $21,000 of my savings in the bank instead of tying it up in home equity. But as I learned, zero down didn’t mean zero upfront costs.

Loan Amount: $340,000

VA Funding Fee: $7,140 (2.1% of loan amount)

Here’s what shocked me: VA charges a one-time “funding fee” that gets added to your loan balance. For first-time VA loan users with 0% down, the fee is 2.15% of the loan amount (2.3% for subsequent uses).

$340,000 × 2.1% = $7,140

This gets financed into the loan, so my actual loan amount became $347,140—not $340,000. I was effectively borrowing an extra $7,140 to cover the VA’s program fee, which I would pay interest on for 30 years unless I refinanced or paid extra principal.

Veterans with service-connected disabilities get this fee waived, but I wasn’t rated for any disabilities, so I paid the full amount.

Interest Rate: 6.25%

VA rates in September 2024 were extremely competitive. My VA lender quoted 6.25% with no points and no rate buydown—just straight par pricing.

Monthly Principal & Interest: $2,137

Based on $347,140 loan at 6.25% over 30 years.

No Mortgage Insurance or PMI

This was VA’s killer feature: no monthly mortgage insurance regardless of loan-to-value ratio. Conventional loans require PMI when you put down less than 20%, and at 5% down, my PMI would have been $150-$180/month.

Total Monthly Payment: $2,420

• $2,137 principal & interest
• $0 mortgage insurance
• $283 property taxes ($3,400 annual)

Total: $2,420 per month

Debt-to-Income Ratio: 34.7%

($450 car + $2,420 mortgage) / $7,000 income = 41.0% DTI

VA doesn’t actually use traditional DTI ratios—they use “residual income” requirements instead. After subtracting all debts, taxes, and living expenses from my income, I had $1,840 remaining per month, which exceeded VA’s $1,117 minimum requirement for my family size in my region. I was well-qualified on VA terms.

Cash Remaining After Closing: $16,800

Even with $0 down payment, I still had to pay closing costs out of pocket:

• Title insurance: $1,200
• Appraisal: $600
• Loan origination: $900
• Prepaid taxes & insurance: $1,100
• Escrow setup: $400

Total closing costs: $4,200

VA rules prohibit lenders from charging certain fees to veterans, which kept my costs lower than conventional. But I still needed $4,200 cash at closing, leaving me with $16,800 of my original $21,000 savings.

5-Year Total Cost:

• Down payment: $0
• Principal paid (5 years): $36,240
• Interest paid (5 years): $91,980
• Mortgage insurance: $0
• VA funding fee (financed): $7,140

Total 5-year out-of-pocket: $135,360 (includes financed funding fee)

Conventional 5% Down Analysis

Down Payment: $17,000 (5% of $340,000)

This would reduce my loan amount by $17,000 compared to VA, but would leave me with only $4,000 remaining after closing for emergencies.

Loan Amount: $323,000

No Funding Fee or Upfront Costs

Unlike VA, conventional loans don’t charge upfront funding fees—the loan amount is exactly the purchase price minus down payment.

Interest Rate: 6.50%

Conventional rates were slightly higher than VA in September 2024. My conventional lender quoted 6.50% with my 712 credit score and 5% down—0.25% higher than VA’s 6.25% rate.

This rate differential is typical: VA loans almost always offer 0.125-0.375% better rates than conventional for identical credit profiles because the VA guarantee reduces lender risk.

Monthly Principal & Interest: $2,041

Based on $323,000 loan at 6.50% over 30 years. This was $96 less than VA’s P&I despite only being 0.25% higher rate, because my loan amount was $24,140 smaller ($323,000 conventional vs. $347,140 VA including funding fee).

Monthly PMI: $166

At 712 credit with 5% down, conventional PMI was quoted at 0.65% annually: $323,000 × 0.65% = $2,100 per year = $175 per month.

The key advantage over VA: this PMI automatically cancels when I reach 78% LTV (approximately year 7-8 with normal payments and modest appreciation).

Total Monthly Payment: $2,490

• $2,041 principal & interest
• $166 PMI
• $283 property taxes

Total: $2,490 per month

Wait—this was $70 MORE per month than VA despite smaller loan amount. The PMI cost exceeded the interest savings from the smaller loan balance and slightly higher rate.

Debt-to-Income Ratio: 35.6%

($450 car + $2,490 mortgage) / $7,000 income = 42.0% DTI

Conventional lenders cap DTI at 45% typically, so I was comfortably approved. But VA’s residual income method actually gave me more approval cushion despite having lower payment.

Cash Remaining After Closing: $3,200

Between $17,000 down payment and $4,800 closing costs (slightly higher than VA due to additional lender fees), I would have only $3,200 remaining from my $21,000 savings.

Conventional closing costs were about $600 higher than VA because lenders can charge underwriting fees, processing fees, and other costs that VA prohibits charging to veterans.

5-Year Total Cost:

• Down payment: $17,000
• Principal paid (5 years): $34,580
• Interest paid (5 years): $87,880
• PMI paid (5 years): $9,960

Total 5-year out-of-pocket: $149,420

Side-by-Side Comparison

Why I Chose VA Despite Not Planning to Stay Long-Term

The 5-year comparison showed VA saving $14,060 compared to conventional—a significant advantage. But the real story was more nuanced.

Cash Flexibility Mattered More Than Monthly Payment

Having $16,800 in savings after closing versus $3,200 was worth way more to me than saving $70/month on payment. As active duty military facing potential PCS orders, unexpected TDY costs, or family emergencies, that liquidity cushion provided peace of mind.

If I had used conventional 5% down, I would have felt cash-poor despite owning a home—and I might have needed to use credit cards or loans for unexpected expenses, costing more in interest than I saved on the mortgage.

VA Funding Fee Hurts Less Than It Looks

Yes, the $7,140 VA funding fee effectively inflates my loan balance. But comparing financed funding fee to $17,000 conventional down payment isn’t apples-to-apples.

With conventional, I permanently lose access to that $17,000 as home equity that I can’t easily tap without a HELOC or refinance. With VA, I keep $17,000 liquid and only pay interest on $7,140—which costs me about $450/year at my rate, or $37/month.

Over 5 years, that funding fee costs me $2,250 in interest. But having $17,000 liquid is worth more than $2,250 to me in opportunity value and financial flexibility.

No PMI Saves More Long-Term Than Spread Suggests

The 5-year analysis showed $14,060 savings for VA. But if I keep the home 7-10 years, the gap widens significantly because conventional PMI continues until year 7-8:

7-year conventional PMI cost: $13,944 ($166 × 84 months)
7-year VA mortgage insurance cost: $0

VA’s advantage grows to $18,000-$22,000 over 7-10 years compared to conventional, even accounting for the funding fee and slightly larger loan balance.

Future PCS and Rental Conversion

Military homebuyers have unique considerations around PCS orders. If I get reassigned in 3-5 years, I can convert this home to a rental property and use my VA entitlement again for a second home at my new duty station (assuming I have enough remaining entitlement or the property value supports it).

Having zero down in this home means I preserve more capital for a second purchase. And as a rental, having no PMI means better cash flow—the $166/month PMI on conventional would significantly hurt my rental profit margin.

When Conventional Makes More Sense for Military Buyers

Even though VA worked better for my situation, conventional can be the better choice if:

You have a disability rating and qualify for VA funding fee waiver. If your funding fee is waived, VA becomes even more dominant because you eliminate the $7,140 financed cost. In that scenario, VA beats conventional by $20,000+ over 5-10 years with zero downside.

You’re buying significantly below your maximum entitlement. If you’re buying a $200,000 home and plan to upgrade later, you might want to preserve your full VA entitlement for a future larger purchase. Using conventional now with 5-10% down keeps your VA benefit available for the bigger home later.

You have 20%+ down payment saved. At 20% down, conventional eliminates PMI entirely and becomes competitive with VA on monthly payment—plus you avoid the funding fee. If you have $68,000 saved for 20% down on $340,000 purchase, conventional might save you $150+/month compared to VA with funding fee.

Your VA funding fee is 3.3% (subsequent use). If you’ve used VA benefit before and don’t qualify for fee waiver, subsequent use funding fee is 3.3%—significantly higher than first-time use. At that point, conventional with 5-10% down may have lower total cost depending on rates and PMI pricing.

You’re buying well above your VA entitlement limit. If you’re buying a $750,000 home and your VA entitlement only covers $510,400, you’ll need to make a down payment for the difference anyway—at which point conventional may offer better overall terms than VA+jumbo combination.

Resources That Helped Me Compare

I used several tools during my VA vs. conventional comparison:

Browse Lenders connected me with a lender who specialized in military purchases and could quote both VA and conventional side-by-side with identical terms. Many lenders push VA aggressively without showing conventional alternatives—having both quotes let me make an informed decision.

Middle Credit Score helped me understand how my 712 credit score affected conventional PMI rates and qualification. The education around credit tiers showed me that improving to 740+ would have saved an additional $30/month on PMI if I chose conventional—useful information for future refinance planning.

Cash-Out Refinance tools helped me model what happens if I need to tap equity later through HELOC or refinance. Understanding liquidity options after purchase helped me evaluate the value of keeping $16,800 cash versus deploying it as down payment.

The biggest lesson from my comparison: VA’s zero-down benefit is real and valuable, but it’s not automatically better in every scenario. Military buyers should compare both programs with actual quotes based on their specific credit, down payment capability, and plans for the home.

For me with 712 credit, $21,000 savings available, and 3-5 year horizon before potential PCS, VA’s combination of $0 down, no PMI, competitive rate, and preserved liquidity saved $14,060 over 5 years compared to conventional 5% down—and gave me $13,600 more cash cushion after closing.

If you’re active duty or veteran eligible for VA benefits, I recommend getting quotes for both VA and conventional from military-experienced lenders who can show you the total cost comparison over your expected holding period. The difference might be $5,000—or it might be $20,000—depending on your down payment, credit score, and whether you qualify for funding fee waiver.

Understanding your middle credit score impact on PMI pricing helps you evaluate conventional alternatives accurately. And if you’re considering keeping the home as a rental after PCS, factoring in cash flow implications of PMI vs. no PMI over 10-15 years changes the comparison significantly in VA’s favor.