VA or Conventional: What’s the Better Choice for a Veteran?

Which loan is right for you, VA or conventional?

Buying a home can be a stressful process, from finding a home that fits your needs all the way to procuring a loan that provides the best terms for your investment. For veterans and service members, there is another factor to consider – choose a VA loan or conventional loan.

While conventional loans can provide generous lending terms, they don’t always meet the needs required by service members. Most notably, the 10 to 20 percent down payment required by conventional loans takes a toll on one’s pocketbook, and after you’ve experienced multiple reassignments and deployments, you may not have the cash or credit needed to procure the loan.

The Department of Veterans Affairs (VA) has taken this into consideration to provide our nation’s heroes with a lending program that specifically caters to their needs.

Benefits of the VA Loan

According to the many service members who have already taken advantage of this program, the VA loan’s number one benefit is the zero money down option. With the VA loan program, qualified service members can purchase a home in most counties across the U.S. worth up to $417,000 without placing a down payment; however, in high cost counties this number can eclipse $1 million. Other benefits include:

• Lenient eligibility requirements
• Favorable interest rates
• No mortgage insurance required
• Assistance available in case of foreclosure or default

Lenders are able to provide these benefits through the VA guaranteeing up to a quarter of each loan. With a guarantee, lenders have more freedom to be lenient on loan terms, eligibility, and income requirements. Another factor is the fact that the VA loan program also has a funding fee, which in most cases is under 2 percent of the entire loan amount and can be rolled into the loan itself. This funding fee keeps the program from draining taxpayer dollars and keeps the program alive for future generations.

While these benefits are great, there is a one primary restriction – VA home loans are limited to purchasing a primary residence, which means no investment property.

Determining Eligibility

To determine eligibility for the VA loan program, a person must meet one of the following requirements: serve for a minimum of 90 consecutive days on active duty during wartime, serve for a minimum of 181 consecutive days on active duty during peacetime, serve in the Reserves or National Guard for a minimum of six years, or be the not-remarried spouse of a service member who died due to a service-related injury.

The next step is to acquire a Certificate of Eligibility (COE). You can request your COE from the VA or, in most cases, the quicker method of contacting a VA-approved lender.

When procuring financing, lenders will expect a credit score of at least 620 and will need copies of your W2 statements for the past two years and copies of your previous two pay stubs, if you are self-employed, expect to provide two years of consecutive tax returns.

When determining eligibility, it is best to talk to a knowledgeable real estate agent or VA-approved lender.

Kevin Pearia is a mortgage commentator for Veterans United Home Loans, the nation’s leading dedicated provider of VA Home Loans.

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