Conventional or VA Loan: Choosing the Better Option

VA loans, a cost-effective and mortgage program, has helped more than 21 million veterans to fulfil their dream of owning a home. Zero down payment and low-interest rates make VA loans an attractive option among veterans and active service members. There are, however, certain situations when it is not possible to use VA loans to finance your investment. VA loans, for instance, can’t be used to purchase vacation homes or investment properties. It is, therefore, advisable to compare both VA and conventional loans before making the final decision.  Read on to learn some of the pros and cons of VA and conventional loans.


Conventional Loan

Conventional loan has a standard 30-years fixed interest rate plan. The lender follows strict underwriting standards and qualifying borrowers need to have sufficient income, good credit history and stable employment history. There’s no minimum credit score required to get a conventional loan, but lenders prefer borrowers with a credit score of 620 out of 800. The borrower also needs to pay at least 10 percent of the mortgage principal as down payment.

VA Loan

VA loans, guaranteed by The Department of Veteran Affairs, have lenient underwriting standards for borrowers. The veterans with a dishonorable discharge history aren’t eligible for the VA loan. The borrowers don’t need to pay mortgage insurance, but a VA funding fee is charged, which somehow covers up the cost involved in granting the VA loan. The funding fees could be as low as 0.5 percent and as high as 3.3 percent of the loan balance. There is no down payment required for VA loans, but if a veteran makes a down payment, the VA funding fee reduces.

Pros and Cons of Conventional Loan

Conventional loan usually takes less processing time than the VA loan. Borrowers need to make a higher down payment for conventional loans as compared to VA loan and so the home equity builds faster in the conventional loan. The initial payment may be a hurdle for borrowers with little income or savings. If a borrower makes down payment of an amount lesser than what’s required, they might have to purchase private mortgage insurance.

Pros and Cons of VA Loans

The buyer doesn’t need to take mortgage insurance and there are chances that he might get up to 100 percent of the sale price of the property as the loan amount. The lender doesn’t emphasize on the credit score of the borrower but the applicant needs to have a clear credit record for the past one year. The downside of VA loan is that it doesn’t have interest-only mortgage options and the surviving spouse needs to repay the loan amount if the veteran dies before the payment is over.

Both conventional and VA loans have their own sets of pros and cons, VA loans, however, are a better choice for veterans, thanks to low interest rates and lenient terms.


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