How Is a VA Loan Better Than a Conventional Loan

By Bethany Eanes

The Department of Veterans Affairs (VA) offers a loan guarantee service to help veterans and active-duty service members afford home ownership. Through the guarantee, the VA offers insurance to a private lenders willing to write a loan. Without the VA insurance, the loan would be a conventional mortgage. With the VA insurance, the new VA loan offers several advantages over a conventional mortgage.

The VA started its home loan program because it saw a large need within the veteran community. Many veterans have low credit scores; often, these low scores are the result of the time spent in the military. During this time, veterans stationed abroad may have difficulty meeting loan payments and may not take any active loans. The VA can help veterans counteract bad credit on a loan application by offering insurance on the loan, making it less risky for a lender to engage a veteran borrower. This is one key advantage to working with the VA instead of simply taking a conventional loan.

VA loans have several benefits over conventional mortgages beyond simply making it easier for a borrower to qualify. VA loans require low down payments, making it possible for an individual with only a small amount of savings to purchase a home. The loans are also issued with fixed rates, and these rates are often lower than the going private mortgage rates. Since the VA insures any VA loan, the borrower does not need to pay private mortgage insurance. Further, if the borrower needs to refinance the loan in the future, the VA can make this process easier than a conventional lender would.

If you hope to take advantage of the benefits of a VA loan, you should be prepared to deal with a few of the drawbacks. The main drawback is the time it takes to secure a VA loan. You will first need to learn whether or not you are approved for a loan guarantee through a separate application process with the VA. This guarantee depends on your military status; you must be either active duty or honorably discharged to qualify. The application for a loan guarantee can add weeks or months to the home loan approval process. The VA may limit you from taking on home equity loans on the home, and you may also be limited in the size of your mortgage.

Not all veterans will qualify for a VA loan. Even though the VA may forgive minor credit problems due to your participation in the military, it is not likely to overlook very recent foreclosures, defaults or bankruptcies. You may have to wait and rebuild your credit before restoring your eligibility for a VA home loan. If you have defaulted on a VA home loan in the past, you must resolve this dispute prior to obtaining approval for a new VA home loan.

To obtain a VA home loan, first submit VA Form 26-1880, Request for a Certificate of Eligibility for VA Home Loan Benefits, to a VA Eligibility Center. You will need to provide your discharge papers or military ID in order to finalize your eligibility. Next, you will need to find a home you wish to buy and sign an agreement to purchase the property. The VA will then conduct an inspection of the property to make sure it is eligible for the loan. Your final step is speaking with a conventional lender to secure your mortgage, using the VA home loan as insurance on the loan.

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