It seems as many people have questions as to the differences of these two loan programs. I spent the last 4 years just originating VA loans and they are not hard once you know what you are doing.
Conventional Loans are not guaranteed or insured by the Federal Government. All U.S. citizens, resident aliens, or non-resident aliens working under acceptable work visa are eligible for these loans.
VA Loans are guaranteed by the Department of Veteran Affairs. Typically, the maximum loan amount that is offered under these loans is lower than conventional loans. However, VA loans do not require any down payment. There are certain VA Eligibility guidelines laid down by the government. Generally, all active and discharged veterans are eligible for this loan.
These loans frequently offer lower interest rates than ordinarily available with other kinds of loans. Aside from the veteran's certificate of eligibility and the VA-assigned appraisal, the application process is not much different than any other type of mortgage loan. And if the lender is approved for automatic processing, as more and more lenders are now, a buyer's loan can be processed and closed by the lender without waiting for VA's approval of the credit application.
To better understand what loan is best for you, here is a comparison of both types of loans.
- As stated earlier, conventional loans would typically require a down payment, unless you have extremely high credit rating. VA loans do not have this condition.
- The Closing costs involved in a conventional loan are much higher compared to VA loans. The reason for this is that the government regulates these costs and passes the benefits on to the borrower. Pre-paid costs are however the same.
- It is easier to include a co-signer for the conventional loan. All income of the co-signer is considered towards the approval process. VA loans, however, require that the co-signer is also a veteran or spouse of another veteran.
- The credit score required to obtain a conventional loan is generally higher than that for a VA loan.
- VA provides higher flexibility of negotiating interest rates with the lender compared to conventional loans.
- Unlike conventional loans, VA loans do not require the borrower to pay a monthly mortgage insurance premium.
VA Loans are certainly a better option provided you are eligible. They offer a range of benefits to veterans. If you are eligible and already have a conventional loan, it may be possible to refinance with VA financing.
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