You’ve heard this almost anywhere. VA loans are one of the most powerful mortgages today, if not the most viable. You might ask what makes VA-backed mortgages so? How are they different from standard, conventional mortgages in the market?
The U.S. Department of Veterans Affairs has been helping eligible veterans of the U.S. Armed Forces become homeowners. Since 1944, over 20 million VA loans have been made to these borrowers, providing access to mortgage credit on more favorable terms.
To weigh just how favorable it is to qualify for VA loans are, let’s compare their features with that of conventional mortgages. Are you ready? Get in touch with a lender today.
Conventional, VA Loans: Who Are They For
In all fairness to conventional mortgages, they are the choice of most mortgage applicants because they’re more readily available but that’s not to say that they are easily accessible.
VA loans, on the other hand, are not for everyone. They benefit Americans, as well as their families, who have served or been serving in the military.
This nature of employment, which could have precluded them from establishing credit for loan qualifying purposes, has been the primary reason behind the creation of the VA loan program.
Comparing VA and Conventional Loans
How do VA loans compare with conventional loans? Take a look.
VA: You can take out a VA loan with no down payment. That’s right. You don’t need to contribute a portion of the home’s purchase price for as long as its sales price does not exceed its market value. This feature alone makes VA loans among the very few remaining mortgages that can be taken out with no down payment.
Conventional: Standard down payments on conventional loans are 20%. This is to avoid paying mortgage insurance premiums. There are conventional mortgages conforming to Freddie Mac’s or Fannie Mae’s guidelines, however, that can accept down payments as low as 3%.
Clincher: Three percent of $424,100 ($12,723) is still expensive compared to none.
VA: Despite the 0% down payment, VA loans don’t require mortgage insurance payments, which can be an upfront or monthly expense. This makes for more affordable mortgage payments every month.Shop and compare mortgage rates.
Conventional: If your down payment is below 20% or your loan-to-value ratio exceeds 80%, you are to make mortgage insurance payments on your conventional loan. PMI rates vary, so do how they are paid.
Clincher: While not exactly a mortgage insurance, the VA asks a funding fee every time you take out a loan. The basic funding fee is 2.15%. For conventional loans, the mortgage insurance can be dropped when your LTV reaches 78%. You can either contact the loan servicer or the insurance gets automatically cut off.
Both VA and conventional conforming loans follow loan limits set by the Federal Housing Finance Agency. For 2017, the maximum loan limit for a one-unit home is $424,100 for most counties and $636,150 for high-cost counties in the U.S.
Clincher: To be clear, the VA does not set limits on how much a veteran can borrow. It uses the conforming loan limits as basis for how much it can guarantee per loan. As to conventional loans, there are mortgages that exceed the conforming loan limits. They are called jumbo loans and are used for more expensive properties.
VA: Given the government’s backing, lenders can offer VA loans at competitive rates.
Conventional: Rates on conventional loans tend to be higher than on VA loans.
Clincher: In any mortgage endeavor, the best rates are reserved for those with stellar credit.
Generally speaking, VA loans are easier to qualify. They don’t have a credit score requirement, debt-to-income ratio can go as high as 40%, and rates are lower than on conventional loans.
To qualify for a conventional loan, you need a more-than-average credit score. In 2016 alone, the average credit score for conventional loans was 753 per USA Today.Click to See the Latest Mortgage Rates»