VA vs. Conventional Loans in Tennessee: Down Payment, PMI, Fees, and Qualification
Reviewed by Rodney Rose, Loan Officer / Branch Manager | NMLS #1396861 | DRE #00853403 | E Mortgage Capital, Inc. NMLS #1416824 | September 10, 2026
For a VA-eligible buyer purchasing a Tennessee home, the better mortgage is not decided by the VA loan’s $0-down feature alone. VA financing can preserve cash and avoid monthly private mortgage insurance. A conventional loan has no VA funding fee, works for more occupancy types, and may produce a better total-cost result for a well-qualified buyer with funds to put down.
Compare both loans for the same property and closing date, using the same term, lock period, credit profile, and realistic estimates for rates, points, taxes, insurance, HOA dues, and reserves. The four main decision points are down payment, PMI, fees, and qualification.
Quick Answer. A VA loan often fits an eligible Tennessee primary-residence buyer who wants to preserve cash and avoid monthly PMI. Conventional financing may fit better when the buyer is not VA-eligible, wants a second home or investment property, can put substantially more down, or receives a better rate-and-cost result. A side-by-side preapproval should decide the question with actual numbers.
VA and Conventional Loans Compared at a Glance
Factor | VA Loan | Conventional Loan |
Eligibility | VA eligibility and a Certificate of Eligibility are required; mortgage approval is separate. | No military-service requirement; program and underwriting rules apply. |
Occupancy | Generally a primary residence the borrower will occupy. | Eligible primary homes, second homes, and investment properties use different rules. |
Down payment | Potentially 0% with sufficient entitlement, lender approval, and supported value. | As low as 3% for eligible primary-residence programs; borrower and property rules vary. |
Mortgage insurance | No monthly PMI or FHA-style mortgage insurance. | Borrower-paid PMI commonly applies above 80% starting LTV; structures and pricing vary. |
Program fee | A one-time VA funding fee may apply unless exempt; it may be paid or financed. | No VA funding fee; rate, points, lender credits, and closing costs affect pricing. |
Qualification | No universal VA score minimum; credit, income, DTI, residual income, assets, and overlays matter. | Automated underwriting and lender rules review credit, income, DTI, assets, reserves, LTV, and risk. |
Loan amount | Full entitlement has no VA-set county limit; approval and value still control. Remaining entitlement can change the down payment. | Conforming treatment uses annual county and unit limits; larger loans require an eligible nonconforming product. |
Property review | A VA appraisal establishes reasonable value and reviews Minimum Property Requirements. | Conventional appraisal, condition, insurance, and project requirements apply. |
How Down Payment, PMI, and Fees Change the Cost
Under the VA purchase-loan rules, an eligible borrower may purchase with no down payment when the sales price is not above the VA appraised value and the borrower and transaction qualify. Closing costs, prepaid taxes and insurance, inspections, escrows, and an appraisal gap can still require cash.
The current VA funding-fee chart (effective April 7, 2023) lists 2.15% for first use and 3.30% after first use with less than 5% down; qualifying borrowers are exempt. Conventional loans have no VA funding fee. Selected Fannie Mae 97% LTV options permit 3% down on eligible one-unit primary-residence transactions, subject to product and underwriting rules.
Educational $450,000 Tennessee Purchase Example
Structure | Cash Down | Program Fee | Starting Loan | Monthly PMI |
VA first use, 0% down | $0 | $9,675 | $459,675 if financed | $0 |
Conventional, 3% down | $13,500 | No VA fee | $436,500 | About $182 at 0.50% annually |
Conventional, 20% down | $90,000 | No VA fee | $360,000 | $0 borrower-paid PMI |
Educational example only. It assumes full VA entitlement, a value supporting the price, and an eligible 3% conventional program. Rates, points, closing costs, prepaids, credits, and reserves are excluded. The PMI factor is hypothetical, not a quote or average.
In this example, VA preserves the $13,500 conventional down payment but has a starting balance $23,175 higher if the funding fee is financed. A fee-exempt VA borrower would instead start at $450,000. That difference is why cash retained, rate, payment, PMI, and expected ownership period must be reviewed together.
Test principal and interest with the mortgage payment calculator, then add property-specific taxes, insurance, and HOA dues. The CFPB PMI cancellation guide explains that many borrower-paid PMI loans on principal residences allow a cancellation request at scheduled 80% of original value when conditions are met and generally terminate automatically at scheduled 78% when the borrower is current.
How Qualification and Tennessee Property Costs Change the Choice
A COE confirms VA benefit eligibility, not mortgage approval. The lender still reviews income, debts, assets, credit, occupancy, entitlement, and the property. VA does not set one universal minimum credit score, although lenders may add overlays. VA underwriting also considers residual income in addition to DTI.
Conventional approval uses applicable Fannie Mae or Freddie Mac rules, automated underwriting findings, and lender requirements. Credit can affect both pricing and PMI. DTI matters under both programs, but approval should not be reduced to one promised maximum. Review the detailed Tennessee conventional-loan requirements for the broader qualification framework.
The VA’s entitlement and loan-limit guidance explains that full entitlement has no VA-imposed county loan limit, although lender approval and the lower of price or appraised value still control. With remaining entitlement, the county limit can affect the guaranty calculation and create a down-payment requirement.
For either loan, verify the Tennessee property’s county taxes and any applicable city taxes, obtain property-specific homeowners and flood-insurance information, and include HOA dues or assessments. A borrower can qualify financially while the property’s condition, appraisal, insurance, or condominium review still prevents approval.
Which Option May Fit Your Situation
Borrower Situation | Likely Starting Point | What to Compare |
Full entitlement and limited cash | VA may be the stronger starting point. | Funding-fee status, appraisal, payment, closing cash, and reserves |
Verified funding-fee exemption | VA often becomes more competitive below 20% down. | Actual rate, points, payment, and cash retained |
Strong credit and 20% available | Compare both; conventional avoids PMI and has no VA fee. | Rate, APR, fees, liquidity, and ownership period |
Second home or investment property | Conventional is generally the relevant starting point. | Occupancy, down payment, reserves, property type, and limits |
How to Get Preapproved With a Side-by-Side Comparison
Verify VA eligibility, obtain the COE, and confirm entitlement and funding-fee status.
Document current income, employment, assets, debts, housing history, and credit.
Identify the Tennessee county, price range, property type, unit count, occupancy, and likely taxes and insurance.
Request two scenarios using the same property, term, lock period, closing date, and credit profile, but the actual rate, points, and credits for each loan.
Compare Loan Estimates for cash to close, payment, APR, reserves, conditions, and the period you expect to own the home.
Frequently Asked Questions
Is a VA loan always cheaper than a conventional loan?
No. VA may reduce upfront cash and eliminate monthly PMI, but funding-fee status, rate, points, credits, property, and ownership period affect total cost. A fee-exempt borrower can receive a materially different result from a borrower financing the fee.
Do VA loans require PMI in Tennessee?
No. VA-backed loans do not require monthly private mortgage insurance. A one-time VA funding fee may apply unless the borrower qualifies for an exemption. Taxes, insurance, HOA dues, closing costs, and other expenses still apply.
Does VA require a minimum credit score?
VA does not set one universal minimum score for its guaranty. Participating lenders may use score requirements or other overlays. The lender also reviews payment history, income, debts, residual income, assets, entitlement, and the property.
Can a conventional loan be better for a Veteran?
Yes. Conventional financing may fit a strong-credit borrower making a substantial down payment, someone buying a second home or investment property, or a transaction that produces a better rate-and-cost result. VA eligibility creates an option, not an obligation.
What Tennessee Buyers Should Do Next
Start with VA if you are eligible, but make the final decision from comparable numbers. Funding-fee status, actual rate and points, PMI, cash retained, occupancy, entitlement, and property approval can change the result. Review the VA loan overview and conventional loan options, then request a side-by-side purchase qualification review before making an offer.
This article is for educational purposes and does not constitute a commitment to lend, loan approval, legal advice, tax advice, or a guarantee of rates, terms, eligibility, property acceptance, or closing. Loan programs and qualification requirements are subject to borrower, property, lender, investor, agency, and underwriting requirements.
WRITTEN BY
Rodney Rose
NMLS #1396861
Rodney Rose is a California mortgage professional dedicated to helping families navigate home financing with confidence. Through clear guidance on mortgage programs, loan options, and down payment assistance, Rodney Rose helps homebuyers make informed decisions and move closer to achieving their homeownership goals.
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