Advantages of VA Loan Vs. Conventional Loans

By Alexis Writing

Since 1944, active duty and former military personnel have been able to qualify for a home loan through the VA program at a competitive rate. In order to qualify for a VA insured loan, applicants must be a veteran who has served on active duty with a discharge other than dishonorable. Applicants must also have served a minimum of 90 days during wartime or 181 continuous days during peacetime.The loan has significant advantages as opposed to conventional home loans. It is important to note that the Department of Veterans Affairs is not the lender, but rather insures or guarantees home loans.

With a conventional loan, home buyers are not always given 100 percent financing. Buyers are generally required to put down 20 percent of the value of the home. Often home buyers take out two loans, one for 80 percent of the cost and the other for 20 percent of the cost of the home to get around that rule, but this results in paying fees for two loans and the second mortgage normally has a higher interest rate. If a home buyer does borrow more than 80 percent of the value of the home in a single loan, he is required to pay private mortgage insurance (PMI). The VA eliminates this rule.

Standard home loans come with closing costs that equal in the thousands of dollars. While sometimes a seller will pay these fees or a home buyer can roll them into the cost of the mortgage, these fees can create an obstacle for a new home purchase. In a VA loan, the home buyer is not expected to pay upfront fees. Any closing costs associated with the loan can always be included in the cost of the mortgage.

In the world of conventional loans, a low credit or FICO score causes lending institutions to impose restrictions, extra requirements or limitations. With a low credit score (below 650), a conventional buyer may not even be able to qualify for a loan at all. Such is not the case with the VA loan program. VA loans are more forgiving of low credit scores, and most recipients of a VA insured loan receive a lower interest rate despite their FICO/credit score than they would with a conventional lender.

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