VA vs Conventional Loans | What You Need To Know!
Posted on December 3, 2021
Did you know that veterans thinking about buying a home have access to the lowest-cost loan in the country? In this video, I’m going to break down the differences between getting a VA loan versus a traditional conventional loan for your next home purchase. We’ll look at the qualifications and specifics of each one so you can choose which loan is right for you.
Using Your VA Benefits
Buying a house is not difficult, but it can be confusing—especially when it comes to financing and deciding what kind of loan is best for your specific needs. The major difference between these two loan programs is that the VA loan is strictly meant for veterans, while conventional loans are meant for anyone who qualifies.
In addition to this key qualification, there are some other significant differences between the two. If you’re a veteran, you’ll find that VA loans are extremely more advantageous. It’s important to take a look at them both and compare the differences because, as veterans, they don’t tell us all of our benefits before we get out. These benefits are also sometimes hard to understand.
To understand which loan is right for you, let’s look at the mortgage terms offered by conventional loans compared with a VA loan. A conventional loan typically offers competitive terms and is best used for borrowers with a minimum of 5% down. However, conventional loans will require mortgage insurance for a loan to value over 80%.
If you’re not aware, primary mortgage insurance is charged to borrowers who don’t have more than 20% to put down. Sometimes, PMI can cost hundreds of dollars. As far as interest rates and closing costs, these are very competitive. Additionally, the conforming loan limit is $625,000. This means that if the loan is $625,000 or less, that the homeowner would qualify.
Overall, conventional loans tend to work best for buyers with good credit that are putting 20% down as their down payment. If you qualify for a conventional loan and you’re putting 20% down, it’s typically going to give non-veterans the best deal—especially if you’re working with me.
If you’re a veteran, you’ll want to know how VA loans work. The VA loan offers very competitive rates and can be just as competitive as a conventional loan—but at a much lower cost in the long run. Just recently, VA loans now have no loan limit to the amount of money that a veteran can borrow, compared to the $625,000 limits with a conventional loan. You also don’t have to put 20% down.
In addition, VA loans have no mortgage insurance as conventional loans do. This alone can save a veteran homebuyer thousands of dollars. On top of this, VA loans allow you to buy a house with no money out of pocket. You can even negotiate for your seller to pay closing costs. This is a stark contrast to a conventional loan, where you’re required to put a minimum down of 5%.
When it comes to credit scores, the VA allows homebuyers to go as low as 620. For a conventional loan, you must have at least a 680 credit score; to get the most competitive rate, you’ll need a 740 FICO score or higher. Both loans are going to have closing costs, but the difference with the VA loan is closing costs are going to be substantially lower versus with a conventional loan. The VA requires the veteran not to pay what we call VA non-allowables, which is a savings of about $2,000 on average.
Working With A Qualified Real Estate Agent
If you decide that a VA loan is right for you, it’s important that you work with a qualified real estate agent. Unfortunately, sometimes sellers are simply uneducated, and they don’t know how qualified a VA loan is. When sellers hear 100% financing, they might question it—and that’s where we step in.
We can talk to the seller and educate them on the benefits of a VA loan, explaining how and why a VA loan is just as good as an FHA, conventional, or any other loan in the marketplace. Every time this concern comes up with a seller, we just like to ease their mind and make sure they understand that you’re a qualified home buyer.
Also, another good reason for you to use your VA loan is that you have it and you earned it. Know that it’s probably the best loan product for you compared to anything else. This is a great reason why you need to surround yourself with qualified lenders and real estate agents that know the VA process. The veteran loan is the best loan for you in most cases and you earned it, so you should take advantage of it.
Getting Into Your New Home
I hope this helped you compare the differences between VA loans and conventional loans. If you have any questions, feel free to reach my office at 903-331-0892. My team and I would be happy to help you.
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