A VA loan seems to be the most profitable option compared to a regular loan. You don’t have to pay a down payment, no mortgage insurance and you’ll have a competitive interest rate. Do you think the choice in the battle of VA loan vs Conventional loan is obvious? Not really, because if you can put down 20%, you should consider conventional loans.
What is a VA loan and a conventional loan?
- VA loans are meant for current and former military personnel and their spouses provided by the US Department of Veterans Affairs.
- A conventional loan is intended for everyone who meets the lender’s requirements.
VA loan vs Conventional loan. Main differences
Property type
- VA loan — can be used to purchase a primary residence that meets VA standards.
- Conventional loan — speaking about the property type, this loan will give you more options. With this loan, you can buy a primary residence, a second home, or an investment property — for example, for rental purposes.
Minimum down payment
- VA loan — in this case, you will not need to pay a down payment, but the lender may require collateral. This occurs in competitive markets if the property’s price exceeds market value.
- Conventional loan — you must pay the down payment the lender will request. Don’t be upset because you can pay a 3% down payment. Or, don’t pay at all if you apply for a loan without a down payment.
Mortgage insurance
- VA loan — the borrower does not pay mortgage insurance but pays a financing fee + an advance payment of 1-3%. Military personnel awarded Purple Hearts, disabled veterans, and spouses receiving reimbursements or compensation are exempt from the financing fee.
- Conventional loan — if you put less than 20% down, you must pay private mortgage insurance. The lender determines this amount depending on your credit score and down payment size.
Debt to income ratio
- VA loan — there is no maximum debt-to-income ratio with this type of loan, but lenders will give applications more weight if the DTI exceeds 41%. On average, VA loan borrowers have a 44% DTI.
- Conventional loan — lenders are more favorable to borrowers with a DTI below 36%. But they can also be loyal to higher indicators — everything is quite individual.
Loan rates
- VA loan — borrowers can qualify for more favorable loan rates. The average mortgage rate at the beginning of 2023 was 6.21%, compared to 6.66% for conventional loans.
- Conventional loan — to get a low rate, you will need a high credit score, a low debt-to-income ratio, and a large down payment. In general, you will need to demonstrate your creditworthiness and gain the lender’s trust.
VA loan vs Conventional loan. Conclusion
In the VA loan vs Conventional loan debate, choose what fits into your idea of an ideal property. Of course, it all depends on your desires, plans, and financial situation. A conventional loan may actually be a better choice if you have the capital to pay for a large down payment. Also, in this case, you can avoid paying PMI with a large down payment.
To make an informed decision and have more information, sign up for a free consultation with LBC Mortgage. Together, we can start your mortgage journey and make a great deal stress-free.
