By Carla Olivo, PCSgrades Director of Strategic Communications
How Do VA Home Loans Work?
It might seem a no brainer for those eligible to use the VA Home Loan benefit but deciding which home loan is best for you depends on several key factors.
Who can use a Conventional Loan?
Anyone who can meet the qualifications can obtain a Conventional loan. There are no restrictions on who can apply.
Who can use a VA Home Loan?
The VA Home Loan is designed for those on Active Duty, Guard/ Reserve, Veterans and surviving spouses.
What is a Certificate of Eligibility?
This certificate merely determines your eligibility for the VA loan. It does not automatically mean that you qualify for a mortgage loan. The two are separate and qualifying depends on your individual financial situation.
A VA Home loan offers up to $417,000 in financing on a first mortgage in most counties across the country. A Conventional loan can offer much more in financing and is determined based on your individual financial circumstances.
Down Payment Difference
A VA Home Loan has no down payment requirement. A Conventional loan requires a minimum of 3% down with most homeowners aiming to put down 20%. With less than a 20% down payment, private mortgage insurance (PMI) is required and usually paid on a monthly basis. You can avoid paying PMI by using the VA Home Loan.
More Fees to Pay
A VA loan requires a one-time upfront funding fee between 1.25% and 3.3% of the loan amount. The fee is dependent on your down payment (if there is one), length and branch of military service, and whether you have used your VA loan benefit before. It is usually rolled into the overall loan amount. Veterans receiving VA disability compensation are often exempt from paying the funding fee.
There is no funding fee per se with a conventional loan, but some mortgage lenders have a lenders fee.
When a Conventional Loan is preferred or required over the VA loan
If you are buying a second home or investment property, you will need a Conventional Loan. The VA loan requires that the property be your primary residence.
Certain condominiums and other properties might require a special VA approval which can make the home buying process take longer. In this instance, you may decide to go conventional to avoid any delays.
Then there is this…..Higher Rates
Conventional loans tend to have higher interest rates than VA loans.
When deciding which way to go to finance your new home, consult with a qualified mortgage lender. A professional can help you better understand all available options and what works best for your situation.
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Carla Olivo has garnered numerous TV industry awards including the Associated Press award for Spot News Reporting, and Documentary Reporting. She lives in Northern Virginia with her husband, a retired USMC Lt. Colonel and their two children.Carla Olivo