VA Loan Vs. Conventional Loan: A Complete Guide

When you start looking to buy a house, you’ll notice that there are many types of loans are out there. Not all loans are available to all borrowers. One of the first steps a potential home buyer should take is to find the loan option best for them by consulting with different mortgage lenders.

Before you start searching for your dream home and go through the approval process, let’s take a look at two loan options to see if they both might work in your favor or if one of them stands out as the better option.

What Is A Mortgage Loan?

Before we look at VA loans versus conventional loans, it’s important to know what a mortgage loan is. A mortgage is a loan from a bank or other financial institution that helps borrowers purchase a home or piece of property. When you get a mortgage loan, you’ll work with a mortgage lender or bank that can help guide you throughout the entire mortgage process.

What Is A VA Loan?

A VA loan is a government-backed loan by the U.S. Department of Veterans Affairs, and it’s only available to veterans, active-duty service members, reservists, National Guard personnel and surviving spouses who meet certain qualifications. VA loans require no private mortgage insurance (PMI) and tend to have little to no down payment and minimal closing costs.

It’s important to note that not all active or former service members are VA loan-eligible. To meet the service requirement as an active-duty member of the military, you must serve at least 90 days – all consecutive.

For veterans, National Guard members and Reserve members, active-duty service requirements depend on when you served. For more specifics on VA loan eligibility, visit the U.S. Department of Veterans Affairs website.

What Is A Conventional Loan?

A conventional loan is not backed by the government and can be conforming (meeting the guidelines to be sold to Fannie Mae or Freddie Mac) or nonconforming (not meeting those guidelines). Conventional loans are a popular choice among borrowers because they often offer competitive rates based on your financial situation and the mortgage lender you choose.

VA Loan Requirements

VA loans come with particular financial requirements, just like any other mortgage loan option. To get a loan through our friends at Rocket Mortgage^®, you’ll need a credit score of at least 580, a Certificate of Eligibility (COE) and, ideally, a debt-to-income ratio (DTI) at or below 41%, although it’s possible to get VA loan approval with a higher DTI depending on several factors including your credit score and amount of residual income. Qualifying DTI for a VA loan is often decided on a case-by-case basis.

VA Loan Pros And Cons

Now that you know some of the requirements of a VA loan, it’s important to know some of the advantages and disadvantages.

VA Loan Pros

• Often no required down payment
• No PMI
• Lower interest rates
• Flexible refinancing

VA Loan Cons

• VA funding fees
• Unavailable for vacation or investment-only properties
• Required home appraisal and inspection
• Property restrictions

Conventional Loan Requirements

Conventional loans have more rigid requirements, versus VA loans. For a conventional loan, you’ll most often need a credit score of at least 620 and a maximum DTI of 50%. You also must make a down payment of at least 3%, and PMI is required if your down payment is less than 20%.

Conventional Loan Pros And Cons

Although conventional loans don’t have as many advantages as VA loans, they still offer many benefits to borrowers. Up next are some advantages and disadvantages of conventional loans to consider before making your final decision.

Conventional Loan Pros

• An array of mortgage options
• The possibility of reduced interest rates based on credit score
• Relatively flexible loan terms

Conventional Loan Cons

• Stricter requirements (credit score, DTI, etc.) than most government loans, including VA
• Mandatory PMI if down payment is less than 20%

Is A VA Loan Better Than A Conventional Loan?

If you’re deciding between a conventional loan and a VA loan, you’ll want to base your decision on the factors above as well as your personal research. Ultimately, the mortgage loan you choose should be the one best suited for how much house you can afford. It should also be the loan you’ll get from a mortgage lender at the lowest interest rate, and it should be the option that best meets your personal needs or the needs of you and your family.

What Is The Difference Between A VA Loan And Conventional Loan?

As previously noted, the main difference between a VA loan and conventional loan is that a VA loan doesn’t typically require a down payment, the absence of which can be highly beneficial to future homeowners. The other major benefit of a VA loan versus conventional is not having to purchase PMI, which likewise makes VA loans affordable versus conventional loans. They also tend to have lower rates.

The Bottom Line: The Right Home Loan Option Is Out There For You

Ultimately, the mortgage loan option you go with is entirely your decision. VA loans tend to be favorable versus conventional loans if you can qualify, but both can be great choices for borrowers.

Once you’ve decided on a VA loan, a conventional loan or another home loan option, get started with Rocket Mortgage today. You can also give them a call at (833) 326-6020.