VA Loan True Cost vs Conventional: Is 0% Down Really Free?
Example: Home purchase price: 400000 $ · Loan term: 30 yrs · Mortgage interest rate: 6.75 % · Conventional down payment: 10 % · First-time VA loan use? (1=Yes, 0=No): 1 · Investment return on down payment if invested: 7 %/yr
| VA loan net advantage vs conventional | $178,101 |
| VA loan monthly payment | $2,650 |
| Conventional monthly payment | $2,335 |
| VA funding fee | $8,600 |
| Total PMI cost (conventional) | $27,090 |
| Opportunity cost of down payment invested | $264,490 |
Worked example
On a $400,000 home at 6.75%: the VA loan (first use, 2.15% funding fee) adds $8,600 to the balance, yielding a monthly payment of about $2,662. A 10% conventional down payment ($40,000) gives a monthly of $2,336 — $326 lower — but adds roughly $11,200 in PMI before 20% equity is reached, plus the $40,000 invested at 7% over 30 years grows to $304,000 in opportunity cost. When you count all three factors, the VA loan saves over $272,000 in total 30-year economic value for first-time users.
Frequently asked questions
What is the VA funding fee and who pays it?
The VA funding fee is a one-time charge (2.15% for first-time use with 0% down in 2025) that funds the VA home loan program with no taxpayer subsidy. It can be paid upfront or rolled into the loan. Veterans with a service-connected disability rating of 10% or more are exempt from the funding fee.
Do VA loans require PMI?
No. VA loans never require private mortgage insurance regardless of down payment amount, which is a significant advantage over conventional loans with less than 20% down.
What is the VA loan limit in 2025?
Conforming VA loan limits were eliminated in 2020 for eligible veterans with full entitlement. Veterans with full entitlement can borrow with no upper limit and 0% down. Reduced entitlement (due to an active VA loan) applies county-level limits.
Can surviving spouses use the VA loan benefit?
Yes. The unremarried surviving spouses of veterans who died in service or from a service-connected disability may be eligible for the VA home loan benefit.