VA Home Loan vs. Conventional Loan

a loan officer hands a homeowner the keys to their new home

The housing market can feel intimidating to homebuyers. With rates changing and many ways to purchase a home, it can sometimes feel like a guessing game on what the best option is for you and your budget. If you’re part of the military, you may have the option to buy a home through a VA loan. But to decide if it’s the right fit for you, you should first understand the basics.

The U.S. Department of Veterans Affairs backs VA home loans, which are only for veterans, current military members, and some surviving spouses. However, the federal government does not back conventional loans, which are for anyone who can meet a lender’s financial requirements. Therefore, if you qualify for both a VA home loan and a conventional home loan, you have a decision to make on how you want to purchase your next house. The first items to consider are the loan requirements. In this blog, we compare conventional loans and VA home loans to help you make the best decision on how you will buy your next home.

What Home Loan is the Best Choice?

There are many factors to consider when deciding how to pay for a home. It’s always good to weigh the pros and cons for each of your options. Consider these key points before you choose your loan:

  • Property Type: VA home loans are intended for the purchase of a primary residence, and the property must meet the minimum standards set by the VA. With a conventional loan, you have more options. Conventional loans can be used for a primary home, a second home, or even an investment property. Before applying for a VA home loan, you should know how you intend to use this property.
  • Minimum Down Payment: What’s great about VA loans is that they don’t require a down payment. However, a lender may require money down if the property’s purchase price is higher than its current market value. This can happen in competitive housing markets and bidding wars. Meanwhile, a conventional loan usually requires a down payment, but the amount varies by lender.
  • Mortgage Insurance: VA loans do not require private mortgage insurance (or PMI). However, they do include a funding fee. A funding fee is a one-time, upfront charge that is a small percentage of the loan amount for the mortgage. The rate depends on your down payment and whether you have received a VA loan before. There are exceptions to this fee, however. For example, veterans who have been awarded a Purple Heart, receive compensation for a service-connected disability, and some surviving spouses are exempt from a funding fee. In essence, a conventional loan is the better choice if you can put down more than 20 percent of the home’s price. You can avoid the VA funding fee with a conventional loan, or you could skip the significant PMI down payment with a VA Loan.  If you don’t want to spend much money upfront, a VA loan might be the better choice.
  • Credit Score: Keep in mind you will qualify for better rates with a higher credit score, regardless of loan type. While VA loans technically do not require a credit score most lenders have a minimum score they’ll consider. However conventional loans always have a minimum credit score requirement. The most common minimum credit score is 620, but it still varies by lender. If your credit score is under 700, consider a VA loan so your credit score doesn’t stop you.

What Home Loan Should I Get?

There are many benefits and challenges for both VA Loans and Conventional Loans, so it’s smart to weigh your options before making your decision. The way to make the best, most informed decision is to compare mortgage rates and fees for both types of loans and apply them to your unique situation. At Armed Forces Bank, our employees can assist you in finding the best home loan that fits your needs. Our associates understand the complexities of VA loans because more than 80 percent of Armed Forces Bank has an affiliation with the military. Our Loan Officers are specifically trained to guide clients through the ins and outs of home buying. So whether you choose a conventional home loan or a VA home loan, we can help you find the perfect way to purchase the home of your dreams.

Subject to credit approval.  Fees apply.  VA funding fee may apply.  VA loan qualification guidelines apply.

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