VA vs. Conventional Loans – What is the Right Option for You?

Finding a house to purchase is often thought to be the most challenging part of the home-buying process when in reality, figuring out what loan to apply for and what you qualify for might be even more complex for many homebuyers.

Throughout the course of this article, we will discuss two of the most common loan types, VA loans and Conventional loans, their pros and their cons, and their inner workings to help you decide which might be a better option for you on your home-buying journey.

VA Loan Basics

The U.S. Department of Veteran Affairs states to be eligible for a V.A. loan you have to meet at least one of the four requirements listed below:

1. You have served 90 consecutive days or more of active service during wartime
2. You served 181 or more of active service during peacetime
3. You have served six years of service in the Reserves or National Guard of the United States
4. You are the spouse of a service member who passed in the line of duty or resulted from a service-related injury.

Let’s dive into the benefits that Veterans and their families can utilize.

VA Loans for Active Military Families and Eligible Veterans

VA loans aren’t just for the veteran themself. These loans extend to family members of active duty military personnel and spouses of deceased veterans.

If your spouse has been discharged from the military within 24 months, or if you have previously served as an enlisted person in any branch of service (including the National Guard or Reserves), then you might also qualify for this type of loan program.

Financial Benefits of VA Loans

VA loans are only available to veterans and active-duty service members. These loans typically require no down payment and have no mortgage insurance or PMI requirement, which can save hundreds to thousands of dollars over the life of the loan.

• VA loans have no down payment requirement
• VA loans have no mortgage insurance requirement
• VA loans have no PMI requirement

Low Closing Costs with VA Loans and Lower Credit Requirements

Unlike conventional loans, the VA limits how expensive closing costs can be for their loans to veterans and their families, helping to lighten the burden on first-time homebuyers.

VA Loan home buyers can ask sellers to pay for their loan-related closing costs up to 4% of the purchase price, unlike conventional loans, which can have closing costs of up to 6% of the total cost of the loan.

Additionally, most VA loan lenders only look for a credit score of 620 or above instead of the typical 660 for conventional loans.

Conventional Loan Basics

A conventional loan is a mortgage that the federal government does not insure and is backed by a private entity. These loans are generally easier to obtain than those with an FHA or VA guarantee due to fewer restrictions, but they also typically require higher down payments and interest rates.

Conventional mortgages are available to all borrowers; however, a potential lender will want to see evidence of your ability to repay the loan. This means having good credit (usually 660 or above), plus enough cash reserves for at least 3% of the purchase price, down payment and closing costs.

Lenders also like it when you have a steady income and can show proof that you’re responsible with money management. In general, if you don’t have any assets, lenders may require more than a 20% down payment on a conventional mortgage since there is no federal guarantee backing up your loan in case you default on payments. Speak with your lender to see what their specific requirements may be.

Financial Benefits of Conventional Loans

As one of the most common loan types, there are considerable benefits to conventional loans. Some of those benefits include:

• A wide variety in mortgage choices – leads to more choices with the length of the loan and fixed or adjustable rates.
• You can borrow more money
• Faster underwriting process
• You can hold numerous conventional loans at one time

Down Payments on Conventional Loans

Conventional loans are a bit more flexible when it comes to down payments. While 20% is the typical minimum amount, you can choose to put down less, as low as 3% down.

Private Mortgage Insurance with Conventional Loans

Many conventional loans DO require that you obtain PMI or private mortgage insurance. It’s important to note that if you plan on taking out private mortgage insurance (PMI) with a conventional loan instead of putting at least 20 percent down on your principal residence, then the lender will require that PMI be paid upfront and taken out before closing.

Final Thoughts – What’s Right for You?

VA loans are great for active military families, who can use these loans to purchase or refinance homes. Eligible veterans also benefit from VA loans because they don’t require a down payment, perfect for those returning from active duty and looking to settle down quickly.

Conventional mortgages have their benefits too! They allow you to hold more than one loan at a time, which is great for purchasing a vacation house or second home and give you more control in general over the workings of the loan.

Here at JR Mortgage, we are able to help homebuyers navigate the different financing options available for your situation, including options outside of VA or conventional loans. We even have programs that other banks do not have access to. Give us a call today to learn more!