What is the Difference Between a VA Home Loan and a Conventional Home Loan?

There are several differences between a VA home loan and a conventional home loan. The most significant difference is that VA loans are only available to eligible military service people, veterans, and surviving spouses. On the other hand, conventional loans are available to civilians and the military community. Conventional loan guidelines are also a bit different from VA home loan guidelines.

If you are eligible for a VA loan, you might be wondering if you should apply for a VA loan or a conventional loan. Which is better?

Let’s look at the difference between a VA home loan and a conventional loan to see the better option for you.

Benefits of VA Loans vs. Benefits of Conventional Loans

The benefits of VA loans include:

• A zero percent down payment option
• No private mortgage insurance required
• Lower interest rates than conventional loans

The benefits of conventional loans include:

• No VA Funding Fee
• Anyone can use it; no military connection is required (which is essential if you will be co-borrowing with a non-military boyfriend or girlfriend)
• It can be used to purchase any homes of any type, including vacation homes and investment properties

Potential Downsides of VA Loans vs. Conventional Loans

The potential downsides of VA loans include:

• Only available to active-duty military service members, veterans, and surviving spouses
• There is a funding fee.
• VA loans can only be used to purchase a primary residence (not a vacation home or investment property). However, you can use a VA loan to buy a multi-family property with up to four units as long as you reside in one of the units.
• Some sellers are nervous about accepting VA loans because of the increased home inspection and appraisal criteria.

The potential downsides of conventional loans include:

• You’ll need to pay for Private Mortgage Insurance (PMI) if you put less than 20 percent down until the loan is less than 78% of the appraised value.
• Lower credit scores mean higher interest rates.
• There is no zero percent down payment option, although you might qualify for as little as three percent down, which is still far less than the traditional 20 percent most buyers have heard is required.

Credit Score Requirements

There are no hard-and-fast credit score requirements for VA or conventional loans. But if you’re looking at these loan types, you should plan to have a score of at least 620 to qualify. An excellent credit score for a conventional loan is 740. At that point, you can be eligible for the lowest possible down payment and best interest rates.

Down Payment Requirements

One of the biggest benefits of VA loans is the ability to skip the down payment altogether. You can take advantage of the zero percent down option with good credit. When you put down less than 20 percent, you will need to purchase private mortgage insurance (PMI) to protect the lender since they’re taking a greater risk by lending such a high percent of the purchase price. But as your home value rises and you pay down your debt, your equity in the property will grow. And once your equity reaches 22 percent, you can have your PMI removed.

There is typically a minimum five percent down conventional loan requirement, but you can pay as little as three percent down when you have excellent credit.

Which is Better: VA Loans or Conventional Loans?

One loan type isn’t inherently better than the other. It’s all about finding what works best for you. Conventional loans might suit you best if you need a quick and easy close. If you want to take advantage of the VA’s no-money-down program, a VA loan might be better. You can learn more about conventional loan guidelines and VA loan guidelines from the experts at OVM.

Get Pre-Approved for Your Home Loan Today!

Whether you’re choosing a VA loan, a conventional loan, or any other home loan type, as an OVM customer, you have access to mortgage experts who can guide you every step of the way. Call us directly at 757-296-2148 or start your loan application online.