Keeping more cash at closing and minimizing modeled borrowing cost are different goals. This illustration shows why a borrower eligible for both programs should compare cash, insurance, payments, and remaining debt.
All rates, payments, fees, and borrower circumstances below are hypothetical assumptions, not current pricing, an offer, an approval, or an actual client outcome. Figures are rounded for display. No personal client records were used.
Define the hypothetical purchase
Assume a $600,000 primary-residence purchase, full VA entitlement, lender approval for both alternatives, and a verified VA funding-fee exemption. These are assumptions for the exercise, not an eligibility finding.
The VA option finances $600,000 at an assumed fixed 6.25% for 30 years. Conventional uses $30,000 down and finances $570,000 at an assumed fixed 6.125% for 30 years, plus an assumed $125 monthly PMI for all 60 modeled months. Each option has $5,000 cash-paid transaction fees. No fees are financed.
The five-year comparison
| Modeled item | VA option | Conventional option |
|---|---|---|
| Down payment | $0 | $30,000 |
| Loan principal at closing | $600,000 | $570,000 |
| Down payment + cash-paid fees | $5,000 | $35,000 |
| Monthly principal + interest + modeled PMI | $3,694 | $3,588 |
| Remaining debt at month 60 | $560,023 | $531,223 |
| 60-month interest + insurance + fees | $186,682 | $181,525 |
These figures exclude taxes, homeowners insurance, HOA, other closing account funding, appreciation, tax effects, investment returns, and any future refinancing. Actual cash to close would include relevant additional items.
Keep the $30,000 in the right category
The conventional down payment is not a transaction fee. It contributes equity and reduces the loan balance. The VA alternative retains $30,000 more cash before the other excluded closing items, but it also starts with $30,000 more debt.
Under these particular assumed offers, conventional has a lower modeled monthly loan-plus-PMI payment and lower five-year borrowing cost. VA retains more initial cash. Neither observation decides the household’s preferred balance between liquidity and cost.
What changes the answer
A different VA rate, funding-fee status, conventional PMI quote, down payment, or holding period can change the comparison. The assumed PMI is held constant here solely to avoid predicting cancellation. Actual cancellation rules and premiums need a separate review.
A borrower with little emergency savings may place a high value on retained cash. A borrower with ample reserves might prioritize the lower modeled cost. Request both offers and discuss the tradeoff without assuming future appreciation or investment gains will solve the decision.
The next step before choosing
Confirm the COE and entitlement, verify any funding-fee exemption, obtain actual insurance and cost quotes, and compare Loan Estimates on consistent assumptions. Check the cash left after closing against moving, repair, and emergency needs.
This is an educational example of a comparison method. It does not document a completed client loan, promise zero down for every VA borrower, or identify which program will be cheaper in the market.
Questions to carry into your own comparison
Does the down payment count as money lost?
No. It reduces debt and contributes equity, which is why it is kept separate from interest, insurance, and fees.
What if the funding fee applies?
Revise the cash and loan amount according to how it is paid, then rerun the comparison.
Continue with the relevant guide
Request a second opinion ↗Sources and methodology
Reviewed October 27, 2026. Educational information; actual costs, eligibility, and program rules vary. Examples do not predict future rates or borrower results.