If you are looking for a loan, there are various options available for you in the market. Knowing which one would work for you will help you settle on suitable loans. With every loan type, there are advantages and disadvantages. Many people who served or are in service always take either a conventional loan or a VA loan. Knowing what the two loans entail will help you make an informed decision on whether to settle for these loans.
Below are some things you will need to keep in mind when taking the loan and how these two loans fare in the different categories.
Type of Home You Are Buying
When you are applying for a VA loan, you will notice that there are limits to whatever you plan to use the loan for. VA loans can only be used if you are buying a primary residence.
A conventional loan is the best option if you want to buy an investment property or a secondary home. You can also leverage a conventional loan to buy a vacation home, which further adds to its appeal.
The other thing you need to look at as you plan to get a loan is the mortgage rate. You might think that you are getting a good deal at the start, only to realize that the mortgage rate is so high, meaning you will have to pay back with more money. However, when in this situation, you need to consider getting a VA loan. Its mortgage rate is known to be lower.
You also need to find out if you need a down payment while applying for the loan. With the VA loan, you do not need a down payment to secure it. One thing you need to remember is not putting down money at first will mean that you will pay interest on the total amount. You end up paying more interest because of this reason. Use your VA funding fee chart to see what this fee will be before applying for the loan.
When you compare this to the conventional loan, you will need to pay anywhere from 0-3% of the loan as a down payment. While it might seem like a lot, it will go a long way to ensure that the amount you pay back is significantly reduced.
Credit score varies from one lender to another. Many people think that getting a VA loan does not require a good credit score. Most lenders will require you to have a credit score of about 640 if you are applying for a VA loan.
If you apply for a conventional loan, you might need a credit score of about 620. While that might have been advertised that the credit score is not important, it is different when you think about it in detail.
Your debt-to-income (DTI) requirements will depend on the type of loan you take. Your DTI looks at how much of your monthly income will go into paying your loan. With VA, most lenders require it to be not more than 41%.
When applying for a conventional, you can get a loan with a DTI as high as 50%. With these loans, you stand a better chance of getting them if your DTI is lower.
When you compare these two loans, you realize that VA loans do not need you to have mortgage insurance. However, you’ll have to pay a fee that conventional loans do not need. The fee you pay when taking a VA loan ranges from 1.4% to 3.6 %. You can pay it at the start or as you come to the closing of your loan agreement.
Conventional loans need you to get private mortgage insurance (PMI) if you put down less than 20%. You will pay a higher PMI if you have a lower credit score and a low down payment. Put that in mind when you are figuring out which loan to take.
A VA loan is the best loan for most service people to take. One thing you need to remember is, even with the advantage of not needing money upfront, you will have to pay interest on the total loan amount. If you are looking for something more flexible, then a conventional loan would work for you.
Take time to do the math before you settle on a specific loan type. It will go a long way to ensure you take a loan that suits your needs.