VA Home Loan vs. Conventional Home Loan

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VA home loans are one of the most unbeatable benefits for those who have served or have a spouse who served in the military. To see if you are eligible or to check the requirements, click here. These government-backed loans will not only help you out financially, but they will also aid in finding the perfect home for you and your family. Many differences between a VA home loan and a conventional home loan are quite big, but there are a few discrepancies that slightly vary. Below, the VA Home Loans team has highlighted a few of the key differences to ensure you make an informed decision on your home loan choice!

Mortgage Insurance

Mortgage insurance essentially lowers the risk for the lender who is choosing to open a home loan with you. With this insurance, you may be able to qualify for loans that you would not have previously been able to. The lender will be protected in the unlikely event that you are not able to make your payment or are not meeting the contractual obligations.

Conventional Loan

For a conventional loan, mortgage insurance is required if the borrower is putting down less than 20% of their loan amount. This means that most people who take out conventional loans will be paying the added cost of insurance. The cost will be determined base on your down payment amount and credit score.

VA Loan

Because VA home loans are government-backed you do not need to purchase mortgage insurance no matter how big or small your down payment is. This saves veterans a lot of money throughout the duration of their loan repayment.

Occupancy

There is quite a big difference when it comes to the occupancy regulations between a conventional and VA home loan. In the mortgage industry, an occupancy clause states that you must use the home you are purchasing for your primary residence.

Conventional Loan

If you already have a primary residence, then you can use a conventional loan to purchase a second home or even a vacation home. Within most conventional loans, there is no need for an occupancy clause or anything stating that you must use this house as your main residence. However, there are always exceptions in certain cases.

VA Loan

Within a VA home loan, there is an occupancy clause requiring that the home you are purchasing must remain your primary residence. It must be certified that you will personally be living in the home and not having others live there without you. The house also cannot be used as a vacation home, as this will not meet the occupancy standards.

Credit Standards

Credit standards do not have much variation between the two types of loans that we are highlighting. They are set around the same level, but one may ensure better odds of a lender working with you.

Conventional Loan

For conventional home loans, lenders will typically have strict credit requirements. They want you to have a 640 minimum credit score. The higher your credit score, the more likely they are going to do a transaction with you and the better the rates you will get throughout the loan process.

VA Loan

While the VA does not have a set credit score that you must be at, a lender will. They also require you to have around a 640 credit score or better. Just like a conventional loan, the higher your credit, the better interest rates or loan terms you will receive. However, if your credit is lower than 640, or whatever their required credit score is, that does not necessarily mean you won’t be able to receive a VA home loan.

Down Payment

A down payment is a sum of money that the buyer must pay up-front during the home buying process. This is to secure the home and is put towards the loan amount to start paying it off. The lender typically sees the down payment as your initial investment in the home and the amount is calculated based on the appraised value of the house.

Conventional Loan

The minimum down payment requirement is often around five percent but in some cases, it can be as low as three percent. Regardless, a down payment is required in a conventional loan. This money is your initial investment and will go towards paying off your loan. Before you buy a home you need to keep in mind that you will be required to make a down payment, so start saving your money!

VA Loan

This is arguably the biggest benefit of a VA home loan. The down payment requirement is set at 0%! This rule will be in place as long as the appraised value does not exceed the sales price. The no down payment requirement is also tacked onto the no need for mortgage insurance, which will save veterans oodles of money!

If you or your spouse is a military veteran looking to move and want to purchase your next home using a VA home loan or you are looking to refinance, we are here to help. Contact us today VA Home Loans Idaho with any questions!

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