If you’re looking into investing in properties, you may need to understand the difference between a VA loan vs conventional loan. The number of available homes dropped causing a 20% rise in costs for real estate.
If you’re a veteran, both options will be available to you to help combat these costs. This guide will give you the ins and outs of buying with both a Conventional or VA loan.
Buying a House
First, when discussing a conventional loan, it derives from a standard mortgage from a bank or mortgage company. Conventional loans are conforming loans which means it conforms to all the underwriting criteria. This can include income and debt-to-income ratios.
A VA loan operates in a little bit of a different fashion. Most of the time, a VA loan is set aside for people serving in the military. These loans offer some relief to military service members in certain ways.
But, at the same time, VA loans can be a little bit more expensive in the long run. If you want to not deal with a more expensive loan, you may want to settle on a conventional loan.
Conventional loans might offer a better rate. You might also come across a loan that is cheaper in fees as well. Again, this is a standard loan you might get from a bank or a mortgage company. In terms of rate approval, the conventional loan offers a better deal.
Benefits of a VA Loan
One advantage of the VA loan is that there are no down payments. A conventional lender in certain circumstances may require you to drop a 10% to 20% down payment on a mortgage loan for your home.
Another advantage of a VA loan is the interest rate. Government-backed loans tend to have a lower interest rate than conventional loans. But, with that said, when it comes to rates every buyer’s situation is different.
These rates may change due to credit, financial situations, and the lender they decide to work with when signing. But, in broad terms, VA loans currently possess the lowest interest rates on the market.
Veterans Loan Safety Net
VA loans are also more forgiving than conventional loans. A veteran might fall into foreclosure, a short sale, or bankruptcy. There may be severe consequences to these actions.
But, VA loans offer a bigger bounceback from these circumstances. The credit benchmarks will vary depending on the circumstances. But, the VA does not make the loans, they only insure these loans.
So, these lenders might not require the background checks of a conventional loan. They leave these factors up to the lenders themselves. The VA loan requires a FICO score of around 620.
This is a manageable score for incoming veterans. It is also lower than your typical conventional loan FICO score requirement.
Interest Rates & Closing Costs
VA Loans also offer a great closing cost when buying a home. These government-backed loans limit what lenders can charge. They may also cover any upfront fees that loan providers require to create the loan.
Before deciding on a loan, it’s wise to check with a certified mortgage broker. These brokers can help process fees and give you a better understanding of what you may require as a buyer.
VA Loan Vs Conventional Loan
In the end, there is no such thing as a better loan. Both options have their pros and cons when buying a home.
But, the important thing is to weigh your circumstances when looking at potential homes. The VA loan vs conventional loan arguments both include outweighing benefits.
Follow our Real Estate blog to find out more information on loan options when investing in your new home.