By Gary Schwind
Looking for a new home can be an intimidating process. You’ll see a lot of places that just aren’t right for you and some homes that are out of your price range. Once you actually find a home that you like, navigating the mortgage and financing is another intimidating part of the process. Veterans and active servicemen and servicewomen have an option that can take a little bit of the sting out of the mortgage process: VA loans. Veterans don’t have to choose a VA loan, but a VA loan does provide several advantages over a conventional loan.
About VA loans
VA loans are available for all active and retired servicepeople who meet the minimum requirement for length of service. They are also available for some surviving spouses as well as certain reservists and members of the National Guard. There is no maximum amount for a VA loan. However, there is a maximum on the amount the VA will guarantee. Check to see what the guaranteed amount is in your area.
No Down Payment Required
One advantage of the VA loan is that no down payment is required. This can especially benefit an individual or a family that is looking to buy a home for the first time and doesn’t have any home equity to apply toward the down payment. In that case, the down payment can be the biggest obstacle to home ownership. After all, it’s not easy to save enough money for a down payment on a house. The omission of a down payment can definitely help make the home-buying process easier by reducing the initial cost to the buyer.
For a conventional loan, private-mortgage insurance (PMI) is required for those who are unable to afford a 20% down payment on a home. A VA loan eliminates that expense, too. Since a VA loan is backed by the government, private-mortgage insurance is waived by the banks. Also, because VA loans are backed by the government, banks assume less risk, which can lead to better interest rates than might be available for a conventional loan. The elimination of PMI in conjunction with possible lower interest rates can help save money by keeping the monthly payment lower than for someone with a conventional loan.
Easier to Qualify
VA loans have one other obvious advantage over conventional loans. Generally, it’s easier to qualify for a VA loan than a conventional loan. For a traditional loan, banks generally look for the buyer to have a credit score of 660 or better. While that’s not an impossible number to reach, it sometimes doesn’t take a lot to get your credit score to be less than desirable. For a VA loan, banks typically look for a credit score of 620 for potential buyers. It’s not a big difference, but it could be enough of a difference that you would qualify for a VA loan if you don’t qualify for a conventional loan.
Should You Explore a Conventional Loan?
In general, it’s pretty safe to say that a VA loan is more beneficial than a conventional loan. However, some circumstances exist where you should explore a conventional loan. If your credit score is good and you have enough to make a 20% down payment on a home, then a conventional loan might be the better option for you. When you’re buying a home, make sure to perform a thorough comparison about which type of loan is better for you.