Is it Easier to Get a VA Loan than a Conventional Loan

By Bethany Eanes

The Department of Veterans Affairs, VA, can assist in home financing for veterans of the military. A loan taken with this type of assistance is called a "VA Loan," and it offers several advantages versus a conventional mortgage. A conventional mortgage has no government assistance. Without government assistance, a borrower may need more capital, a higher income or other qualifications to secure the loan. However, even with federal assistance, a borrower will need good credit.

In general, a VA home loan works as a type of government provided insurance on a mortgage. A qualifying veteran still takes a mortgage from a traditional lender, but the VA offers its guarantee to repay the debt if the borrower cannot. This allows the lender to avoid risk in the loan, and, therefore, extend more favorable terms to the borrower.

To qualify for both a conventional or VA loan, a borrower needs a stable income, a down payment and a good credit score. These requirements are still present with the government-assisted loan, but they may be more lax. For example, VA loans may require as low as a 3.5 percent down payment, where most conventional loans require at least 10 percent down. The VA may also be more understanding of the problems veterans face in establishing credit, so they can step in to assist in this area. While all VA borrowers will have to be creditworthy, generally meaning they lack recent defaults, bankruptcies or late payments on loans, the VA can help a borrower who has a short credit history because he or she has been serving in the military.

If you qualify for VA assistance, you will see several benefits on your mortgage. First, you will have a lower down payment requirement. You are guaranteed a fixed-interest rate for the life of the loan. Low monthly payments suitable to your income will be set, making it easier for you to afford your mortgage. Perhaps most importantly, the additional support of the VA can help you qualify for a mortgage even if your income is low your credit history is short. Many lenders would not risk extending a loan to a service member who will be deployed, but with the VA's help, even active duty service members can receive a mortgage.

The VA does take on a lot of risk when it insures a loan. As a result, it will only insure a loan with extreme caution. This means you will likely see low limits on your VA mortgage, limiting the expense of a home you can afford. You will also be under strict payment guidelines; if you declare bankruptcy, your home loan becomes a federal debt, meaning it will be far harder to reduce, negate or have forgiven. If you default on a federal debt, you will not be eligible for another federal loan until you have met criteria to resolve the problem.

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