Which is Better: A VA Loan or Conventional Home Loan?
by PCSgrades Staff - November 5th, 2022
Buying a home requires a lot of research, knowledge, and patience. Luckily there are some fantastic lenders and real estate agents that have the answers to your questions. You’ll have questions about how much you can borrow, what paperwork you need, and what kind of loan you can, or should, use. Between conventional loans and VA home loans, you’ll be able to figure out what’s best for your family.
What service members need to know about VA home loans
The VA Home Loan is available to active duty service members, National Guard and Reserve members, veterans, and surviving spouses. A VA Home Loan has no down payment requirement, which is a great benefit if you haven’t been able to save enough for that down payment yet.
You’ll need a Certificate of Eligibility to determine your eligibility for the VA loan. There are two ways to obtain your certificate, you can visit www.va.benefits.gov or speak to your lender. This certificate does not automatically mean that you qualify for a mortgage loan. The two are separate and qualifying depends on your individual financial situation.
A VA Home loan offers up to $417,000 in financing on the first mortgage in most counties across the country. A conventional loan can offer much more in financing and is determined based on your individual financial circumstances.
It might seem a no-brainer for those eligible to use the VA Home Loan benefit but deciding which home loan is best for you depends on several key factors.
What are conventional loans?
Anyone who can meet the qualifications can obtain a conventional loan. There are no restrictions on who can apply. Conventional loans are not backed by the U.S. government and are typically available through private lenders – including banks and credit unions.
The difference in down payments
A conventional loan requires a minimum of 3% down with most homeowners aiming to put down 20%. With less than a 20% down payment, private mortgage insurance (PMI) is required and usually paid monthly. You can avoid paying PMI by using the VA Home Loan. There is no funding fee with a conventional loan, but some mortgage lenders have a lender fee.
A VA loan requires a one-time upfront funding fee between 1.25% and 3.3% of the loan amount. The fee is dependent on your down payment (if there is one), length, branch of military service, and whether you have used your VA loan benefit before. It is usually rolled into the overall loan amount. Veterans receiving VA disability compensation are often exempt from paying the funding fee.
Which home loan is the best option for military families?
If you are buying a second home or investment property, you will need a conventional loan because the VA loan requires that the property be your primary residence. Certain properties might require a special VA approval which can make the home buying process longer. In this instance, you may decide to go conventional to avoid delays. Another thing to consider is that conventional loans tend to have higher interest rates than VA loans.
When deciding which way to go to finance your new home, consult with a qualified mortgage lender, who you can find on the PCSgrades review site. A professional can help you better understand all available options and what works best for your situation.