By David Piatek, Vice President, The Federal Savings Bank
When does it make sense to use my VA Loan Guaranty benefit? I’ve heard it’s a painful process, you can only use it once, and it’s complicated… have you heard these concerns before? Let’s make sense of it all and uncover the truth behind the advantages and disadvantages of both VA and Conventional loans for active duty military and veterans.
Conventional loans are for anyone that qualifies, and do not have any restrictions on who is eligible to apply for them.
VA Home Loans are designed for:
- Active Duty
- Guard/ Reserve
- Surviving Spouses
To determine if you are eligible for a VA loan you need to get your Certificate of Eligibility. There are two ways to obtain your certificate: visit www.va.benefits.gov (may take up to 5 days) or speak to your lender (process normally takes a couple minutes). Keep in mind, VA Home Loans are designed for the purchase of your home, and not an investment property or a second home.
Also remember, just because you’re eligible for VA benefits doesn’t mean you qualify for a mortgage loan. This is where people are most frustrated, “I earned my benefit, why don’t I qualify?” but at the end of the day it all really depends on your particular financial situation.
VA loans and Conventional loans offer up to $417,000 in financing on a first mortgage in most counties across the country, but there’s a big difference when it comes to down payments for VA loans. A VA Home Loan up to $417,000 has no down payment requirement whereas Conventional loans require a minimum of 5% down (3% for first time home buyers). So when it comes to buying your first home, this makes a big financial impact.
However, there are certain situations where Conventional loan options are preferred over VA loans:
- Such as buying a second home or investment property since VA loans require the property be your primary residence.
- Or when buying a condo since this requires a special VA Approval. (But good news, The Federal Savings Bank works with condos to help secure VA approvals for free.)
Disadvantages of using a Conventional loan on a primary residence:
- You have to pay Private Mortgage Insurance (PMI) if you don’t put down 20%.
NOTE: Some lenders offer products that don’t require PMI, but you will have an increased interest rate to cover the increased risk that PMI would ordinarily cover. So either way, you pay more.
- Conventional loans have higher interest rates than VA loans.
When it comes to what type of property you can buy using your benefits, you have 4 options, including:
- Single Family Home
- Condo (in VA approved buildings)
- Planned Urban Development (think of a subdivision that has a small association fee)
- Multi-unit Residential Building (2 – 4 units)
Each of the above provide options for no down payment, but they come with some restrictions. This is where an experienced mortgage lender is crucial as they can walk you through the entire mortgage process.
When deciding to use your VA benefits on a VA loan, or moving forward with a Conventional loan, speaking with a qualified mortgage lender will help you better understand all available options and what works best for you.
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