Conventional Mortgage Vs. VA Mortgage

By Lynn Lauren

A conventional mortgage is underwritten and backed by Fannie Mae and Freddie Mac. A VA, or Veteran's Administration, is underwritten and backed by the United States government.

The VA created its home loan program to allow military veterans the ability to finance a home with 0 percent down payment and less than perfect credit. A conventional mortgage requires at least a 5 percent down payment and has higher credit requirements than a VA mortgage.

A VA mortgage allows veterans to purchase a home with little investment in the property, thus freeing up cash for other expenses related to moving and a new home.

Both VA and conventional mortgages have terms of 15 and 30 years, with variable and fixed rate options. Conventional mortgages, however, have several more options in terms of rate structure and the length of the loan.

While the VA loan requires no down payment, there is a large upfront funding fee of 2.75 percent that the borrower must pay. Conventional mortgages do not have this fee.

VA loans are not available to every single person who has served in the military. There are terms of service requirements as well as honorable discharge requirements.

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