Mortgage

VA Mortgage vs. Standard Mortgage: Execs and Cons in 2021

Overview of VA Loans vs. Conventional Loans

When it comes to VA loans versus traditional loans, the choice is often an easy one: VA if you are eligible.

However, mortgage loans are not one size fits all, and your situation could be different. Some homeowners are better off with a conventional loan – even if they are VA qualified.

Fortunately, it's easy to compare your options.

Your mortgage lender can guide the numbers on a VA loan versus a traditional loan and help you find the right product for your situation.

Ready to start?

Find the right home loan. Start here (10/27/2021)

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VA Loan vs. Conventional Loan: Which Is Better?

Often times, if you are eligible, a VA loan is better than a traditional loan.

The main advantages of VA over traditional? You can buy a home with no down payment, a higher debt-to-income ratio, and no personal mortgage insurance. You will also likely have a lower mortgage rate and cheaper monthly payments. These benefits are hard to beat.

Conventional loans, on the other hand, are more flexible and can be used to buy almost any property – including a second home or holiday home. And there are no special admission requirements to qualify.

Additionally, most VA Eligible Borrowers can only have one VA loan at a time. So if you want to buy an additional home of your own, you may need to get a conventional loan despite having veteran status.

Of course, each type of loan also has its disadvantages. Before making your decision, find out about the advantages and disadvantages of both types of credit.

VA Loan vs. Conventional Loan Comparison Chart

To make it easier to compare a VA loan with a traditional loan, take a look at this table:

VA loanConventional loanSpecial authorizationLegitimate military service history: NoneMinimum. credit-worthinessTypically 580-620620Minimum. deposit0% 3%Private mortgage insuranceNot requiredRequired if the deposit is less than 20%Up-front financing fee0.5-3.6% of the loan amountClosing costsOften 2-5% of the loan amount, often 2-5% of the loan amountmax. loan amount$ 548,250 for a 1-unit home in most areasEligible propertiesPrimary residences Primary residences, secondary residences, investment properties

Find the mortgage program that is best for you. Start here (10/27/2021)

Differences Between VA Loans and Conventional Loans

There are several differences between VA loans and conventional loans.

The biggest is that VA loans require a military history to qualify.

“A VA loan must be VA eligibility through military service, reserve service, National Guard service, or be a surviving spouse of a veteran who died in combat or from a service-related illness or disability. These people can apply for a conventional loan, but most people who choose a conventional loan are not eligible for a VA loan, ”said Leanne Crist, loan officer at Mortgage Network.

Second, VA loans allow 100 percent funding, while traditional loans typically require at least 3% less.

Third, conventional loans require you to purchase personal mortgage insurance (PMI) if you are depositing less than 20% less.

“Most people who choose conventional credit are not eligible for VA credit.” –Leanne Crist, Loan Officer, Mortgage Network

VA loans do not require a PMI, but you will be charged a financing fee, which is typically 1% to 3.6% of the loan, depending on the down payment.

Fourth, VA loans can only be used to purchase a primary residence, while conventional purchase loans can be used for primary residence, second homes, or investment properties.

Fifth, "A VA loan is backed and guaranteed by the Department of Veterans Affairs, while a conventional loan is backed (usually) by Fannie Mae or Freddie Mac," said Sam Atapour, branch manager of Embrace Home Loans.

As for similarities, "both loan programs generally require a debt-to-income ratio of less than 50%, but preferably closer to 41%," continues Crist.

She adds, "Both loan programs (also) have 30-year fixed rate options, 15-year fixed rate options and floating rate options, depending on the needs of the borrower, the situation and the expected life of the borrower home."

Advantages and Disadvantages of VA Loans

VA loans have their good and bad sides. On the plus side, there is no down payment required, no mortgage insurance, and no maximum loan amount.

On the other hand, "Reviews can take longer, which unfortunately makes VA listings less competitive compared to bar or conventional buyers," said Tony Davis, chairman and CEO of Atlantic Home Mortgage.

"There is also a financing fee that can be added to the loan if you do not want to prepay it."

In addition, you need to qualify for a VA loan, which most borrowers miss.

Davis states that to be eligible, you must meet one of the following requirements:

be on active duty and have served 90 consecutive days a veteran who served 90 days in wartime be a veteran who served 181 days in peacetime six qualifying years in the selected reserve or served in the National Guard have a surviving spouse of an on duty a missing soldier, prisoner of war or veteran who has died in the service or of a service-related disability and you have not remarried

"You may not be eligible if you received anything other than honorable misconduct or a dishonorable discharge, although you can apply to the VA to update your discharge status," Davis added.

Check your VA loan eligibility. Start here (10/27/2021)

Advantages and disadvantages of conventional loans

When it comes to conventional loans, they usually close faster than VA loans.

"Traditional loans can also receive a valuation waiver, which lowers your closing costs and increases the security of closing a property purchase," says Davis. "And there is no financing fee for a conventional loan."

As already mentioned, primary, secondary or investment properties can be purchased with a conventional loan. And home sellers often look cheaper on a traditional loan than a VA loan.

“With traditional mortgages, however, you will need to get private mortgage insurance if you pay less than 20% less. And unlike VA loans, they usually require a down payment of 3% or more, ”notes Nik Shah, CEO of Home.LLC.

In addition, unlike VA loans, conventional loans have maximum credit limits. These are determined by each district; In most counties, the maximum loan amount is $ 548,250 for a single family home.

Check your conventional credit history. Start here (10/27/2021)

When is a VA Loan Better?

If you qualify for a VA home loan, chances are it will give you a better financing offer than a traditional loan. That's because there is no need to invest any money, pay a PMI, or worry about exceeding a maximum loan amount.

"Say you're a veteran who wants to be a first-time buyer of a $ 300,000 home," says Davis. “Let's say you only have $ 6,000 in savings, which is not enough to buy a home with a traditional loan or an FHA loan. You can use your VA benefit to buy the dollar-free home and structure the loan with either a lender loan or a seller loan to pay the closing costs. "

In other words, a VA loan is a better deal here, especially if you don't have enough funds to make a down payment.

“Another example where a VA loan is a better option would be if a borrower has a credit rating below 620 and no money to pay for a down payment. A VA loan is the optimal choice in this situation, ”says Atapour.

When is a conventional loan better?

Despite all of the advantages of a VA loan, a conventional loan may still be a better option.

“Imagine being a first-time buyer looking to buy the same $ 300,000 home. But in this scenario, you have to put down $ 60,000 and there are 15 more listings for the home you want to buy, ”explains Davis.

“Here it is unlikely that a VA offer will be accepted compared to a conventional offer, as a greater risk of problems with the valuation is perceived. But since you have to put down 20%, you can buy the house without mortgage insurance. "

Davis adds, "If getting the house is your top priority, a conventional loan might be the way to go – even if you qualify for both a conventional loan and a VA loan."

Do Sellers Prefer VA Loans or Conventional Loans?

A major challenge for experienced home buyers is that sellers prefer traditional loans over VA loans.

“In today's market with multiple offers for sellers to review, sellers may prefer contracts with conventional financing over VA financing. Usually, the conventional financing valuation lists the property as it is, while a VA valuation often has additional requirements that can ruin the deal in the eyes of the sellers, ”warns Crist.

Still, VA loans tend to offer better deals to buyers (especially first-time buyers) than traditional loans. So it pays to work with your real estate agent and the seller's agent to see if you get the listing for what it is.

Make sure the seller and his agent understand how VA loans really work and that they are not acting under misconceptions about the VA mortgage program. This could help ensure that your offer is accepted.

How to choose the right mortgage for you

The right financing choice for you ultimately depends on several factors, including:

Your ability to qualify for the loan The type of house you are buying Your personal finances The local real estate market Your urgency to buy a property

“Talk to an experienced loan officer to determine the best loan and funding structure,” recommends Davis. "There is no one-size-fits-all approach, and what is best for one may not be best for another."

Confirm your new plan (October 27, 2021)

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