VA vs. Low Down Payment Loans: Which Is Best in the Twin Cities?

VA vs. Low Down Payment Loans: Which Is Best in the Twin Cities?

Homeownership in the Twin Cities is a major milestone, and for many buyers, the biggest question is how to afford the down payment. Two popular paths are VA loansfor eligible veterans and low down payment conventional or FHA loansfor other buyers. Both make it easier to buy a home with minimal upfront cash, but each comes with its own benefits, requirements, and trade-offs.

What Makes the Twin Cities Market Unique for These Loans?

The Twin Cities housing market—covering Minneapolis, St. Paul, and surrounding suburbs—is known for its competitive pricing and diverse housing options. Programs that lower upfront costs are particularly valuable here, as they help first-time and military buyers enter the market without waiting years to save large down payments.

What Is a VA Loan?

A VA loanis a mortgage backed by the U.S. Department of Veterans Affairs. It’s available to active-duty service members, veterans, and some surviving spouses. The program allows qualified borrowers to buy a home with no down payment, no private mortgage insurance (PMI), and often lower interest rates.

VA Loan Highlights

• 0% down payment required 
• No PMI 
• Flexible credit requirements 
• Competitive interest rates 
• Backed by the federal government
  

What Are Low Down Payment Loans?

Low down payment loans are mortgage options designed to help buyers purchase a home with as little as 3% down. These include FHA loans, conventional loans with reduced down payment options, and state programs like Minnesota Housing’s Start Up program.

Common Low Down Payment Loan Types

FHA Loans

• Require only 3.5% down and are accessible for buyers with moderate credit scores.

• Conventional 97 Loans

• Offer 3% down options for qualified borrowers with good credit.

• Minnesota Housing Programs

• Provide down payment assistance to help first-time and repeat buyers afford upfront costs.

How Do the Down Payment Requirements Compare?

• VA Loans: No down payment required for eligible borrowers. 
• FHA Loans: Minimum 3.5% down, with lower credit thresholds. 
• Conventional Loans:3–5% down depending on credit score and lender requirements. 

For eligible veterans, the VA loan’s zero-down feature often makes it the best option. However, low down payment loans are excellent alternatives for buyers who don’t qualify for VA benefits.

How Do Credit and Income Requirements Differ?

VA Loans

VA lenders typically prefer credit scores above 620 but can approve lower scores depending on overall financial strength. Income must be stable and sufficient to cover mortgage payments and living expenses.

FHA and Conventional Loans

FHA loans are more lenient with credit (as low as 580), while conventional loans generally require higher scores (around 680+). Income verification is required for all, but VA loans allow more flexible debt-to-income ratios.

What Are the Costs of Mortgage Insurance and Fees?

VA Loans

There’s no monthly PMI, but most borrowers pay a VA funding fee, which helps sustain the program. The fee ranges from 1.25% to 3.3% of the loan amount and can be rolled into the mortgage.

Low Down Payment Loans

FHA loans require both upfront and annual mortgage insurance premiums (MIP). Conventional loans require PMI until you reach 20% equity, which can later be removed.

In the long run, VA loans typically cost less due to the absence of recurring insurance charges.

How Do Interest Rates Compare in the Twin Cities?

VA loans often come with lower interest rates than comparable conventional or FHA loans. This can translate into substantial savings over the life of the loan, particularly in high-value Twin Cities neighborhoods where home prices exceed $350,000.

What Are the Loan Limits and Restrictions?

VA Loans

Borrowers can finance homes up to local conforming loan limits without a down payment. In most of the Twin Cities, that limit is around $766,550 for 2024.

Low Down Payment Loans

FHA loan limits in the Twin Cities region are typically lower, while conventional limits follow federal conforming standards. Buyers purchasing higher-priced homes may need to make larger down payments.

Which Option Works Best for First-Time Buyers?

For eligible veterans and service members, VA loans are almost always the most cost-effective choice. For civilians, low down payment loans like FHA or Minnesota Housing-backed mortgages offer affordability and accessibility without military service requirements.

How Should You Decide Between VA and Low Down Payment Loans?

Choose a VA Loan If You:

• Are eligible for VA benefits 
• Want no down payment and no PMI 
• Plan to stay in the home long term 
• Want flexible underwriting standards 

Choose a Low Down Payment Loan If You:

• Aren’t eligible for VA programs 
• Have stable income but limited savings 
• Want to take advantage of Minnesota Housing assistance programs 
• Plan to refinance or sell within a few years

Find the Right Loan for Your Twin Cities Home Purchase

Choosing between a VA and a low down payment loan depends on your eligibility, finances, and goals. At Refined Lending, we help Twin Cities buyers compare all available options to find the best fit for their needs. Our team makes the process simple, transparent, and stress-free from pre-approval to closing.

Contact Refined Lending todayand explore which mortgage option will help you achieve homeownership in the Twin Cities.