VA Home Loans Vs. Conventional Home Loans

Finding the right home to purchase can be a difficult decision for any interested buyer, but choosing the right type of home loan to finance that purchase can be even more overwhelming.   Veterans and active duty service members have multiple financing options available to them when they decide to buy a home. Service member’s most popular option is often the VA home loan program since it is specially designed to fit their unique financial situations. However, some military members may find that using a conventional loan program may be better suited to their needs.

The VA Home Loan Program

The VA home loan program was established in 1944 to help veterans and active duty service members achieve homeownership, and remains one of the most progressive lending products available today for military members without large amounts of expendable income. What makes the program successful is the VA’s partial guarantee of each loan, which allows VA-approved lenders to offer money saving benefits to military members in confidence.

One of the most enticing benefits of the VA home loan program is the no down payment option. With a VA home loan, veterans and active duty service members are able to finance 100 percent of their home purchase with zero money down while conventional lending programs generally require a down payment of at least 20 percent. The lack of a down payment allows veterans to optimize their buying power by offering them a chance to purchase a larger home more suited to their needs. Other benefits offered by the VA home loan include:

• Flexible mortgage terms
• Competitive interest rates
• High loan limits

In addition to offering greater benefits, the VA home loan program also has more lenient eligibility requirements than conventional lending programs. There are no income or credit requirements with a VA home loan, and military members are only required to meet one of the following to be eligible:

• Have served at least 3 months on active duty during war time or served 181 days on active duty during a time without conflict
• Have served 6 years in the military Reserves or National Guard

Conventional Home Loans

For military members with greater amounts of income and savings, a conventional loan may be a better lending option. Although conventional home loan programs require a down payment, they do offer lower interest rates than VA home loans, which could save a family thousands over the course of their loan. The down payment also alleviates the amount of the loan needed, which can reduce monthly payments and give military members extra money in their monthly budgets.

Conventional home loans are also more difficult to qualify for than a VA home loan. VA home loans have no income or credit requirements while conventional home loans do.  Conventional home loans generally require a credit score of 700 or better to secure financing, while many VA-approved lenders will also require a mid-range credit score of 620.  VA-approved lenders may also still secure financing for military members with an imperfect credit history.

Choosing the right type of financing can be a difficult decision for any potential borrower. To determine the best option available, military members should consider speaking with a VA loan specialist, as well as a conventional loan specialist, before choosing a home financing option. Both types of professionals will be able to educate potential borrowers on the advantages and disadvantages to each program, and may help them determine the loan amount they are eligible to receive.

Matt Polsky is a mortgage commentator for VA Mortgage Center.com. VAMC Is the Nation’s leading provider of VA loans, securing over $1 Billion in VA Loan financing in 2010. Image by Tampa Bay Informer