A Veteran's First Home: Should You Use a VA or Conventional Mortgage?
If you're a veteran looking to get into your first home, your Google searches on what kind of mortgage to choose have likely resulted in a flood of jargony opinions and advice.
It's our goal to help you get out of the confusing stage of online searches and into the first steps of actually applying for a mortgage.
In this post, we'll go over what each loan is and which points you need to consider when making your decision. We'll also discuss how you can start the process of getting into that home you've got your eye on.
VA Loans and Conventional Loans Defined
- VA Mortgage – A home loan that is guaranteed by the U.S. Department of Veterans Affairs (VA).
- Conventional Mortgage – A home loan that is not government-backed, but rather purchased by government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and then kept as an investment or sold to investors.
Which Is Better, a VA Mortgage or a Conventional Mortgage?
A VA home loan is designed to offer a more attractive loan for qualified veterans to take advantage of. It's backed by the government, so your lender takes on less risk with VA loans than with conventional loans and can often give you better terms and rates.
However, the choice that is right for you depends on your circumstances. There are some aspects of the loans, such as terms, fees, and rates, that you can compare to help make your decision.
Conventional Mortgages vs. VA Mortgages
|Conventional Mortgage||VA Mortgage|
|Down Payment||Can go as low as about 3%||No down payment required|
|Fees||Varies between lenders||VA Funding Fee (though there are exceptions, including for some veterans with service-related disabilities)|
|Required Documentation||Employment history, pay stubs, 2 years of W2s, assets||Same as conventional mortgage, plus Certificate of Eligibility, request form for CoE, and other military documentation|
|Interest Rates||Vary depending on lender and your qualifications||Usually lower than those for conventional loans|
|Mortgage Insurance Premium||Often required on loans with less than 20% down||Not required|
|Credit Score||Above a 640 credit score usually required, but varies depending on lender and qualifications||No VA-directed credit score requirement, though lenders can look for certain scores|
|Loan Limits (How Much You Can Borrow)||$453,100 in most areas (2018), though it varies between counties||No VA-directed loan limits, but they'll only guarantee a certain amount of a loan, which is $453,100 in most areas (2018)|
|Properties Accepted||Property borrower buys as either an investment, a property to rent out, or a living space||Property where borrower has primary intention of living in the home|
|Debt-to-Income Ratio (How Much of Your Gross Monthly Income Goes to Payment of Debts)||Around 43% or lower, with good credit||Around 41% or lower|
What This Means
If you're a qualified veteran, you have the opportunity to take advantage of your VA benefits, which will almost always offer more favorable rates and terms than a conventional loan. You've taken time to serve your country, so you now have the opportunity to receive some assistance getting into a home.
Other positive aspects of a VA mortgage to keep in mind include:
- May have lower closing costs than a conventional loan
- You can receive help from the VA if you struggle to make payments at some point during the loan
- Option to roll the VA Funding Fee into the overall loan balance
- No prepayment penalty, which means you can't be penalized for paying your loan early
- Easier to qualify for
How to Know If You Qualify for a VA Loan
Many veterans can take advantage of the VA mortgage benefit, including active duty veterans who have served either 90 consecutive days during wartime or 181 consecutive days during peacetime, those who have served six years in the Reserve or National Guard, and some surviving spouses. For more information on who is eligible, visit the VA Eligibility site.
What to Do Now
To find a loan that is right for you, start by talking to mortgage professionals. They can help you sort through the details of different loan types and how they apply to your specific situation.
Rates, terms, and fees can vary between lenders—even with government-backed loans like VA loans—so be sure to get bids from multiple lenders before you decide to go with one.
You can also get pre-qualified now, which gives lenders a good idea on whether you're a good investment for their firm.
Visit our VA loans page for more information on VA loans and how to get pre-qualified for one.
Who We Are
As a VA-approved mortgage company, we've been working with loans for years. But beyond that, we hire experienced, talented professionals who really care about the people they help with loans.
Our loan officers can help you understand your options so you can move confidently through the process of applying for a mortgage. With questions or for help finding the mortgage that is right for your unique situation, give us a call at 866-569-8272 or visit us online at www.lowvarates.com.