You have many choices for financing your first home purchase. If you're a U.S. veteran, it might seem like an easy decision to opt for a VA loan over a conventional loan. However, understanding the major differences between the two options will help you get the best financing for your needs. Here are the basic things first-time homebuyers should know:
The type of property you plan to buy is a major factor in whether you get a VA or conventional loan. VA loans can only be used for your primary residence. You can use a conventional loan to fund the purchase of almost any type of property, no matter the intended use. VA loans are an excellent choice for first-time homebuyers, but only if you're actually buying a home you'll use as your primary residence.
Down payment requirements differ between VA and conventional loans by a significant amount. VA loans come with the major benefit of not needing a down payment in most situations. Conventional loans almost always have down payments and some encourage spending more than the minimum requirement to get lower interest rates or other favorable terms.
Loans of any kind come with additional fees for various reasons. VA loans have a notable one-time fee to help the lender in case of default. Sometimes, the fee is combined with the total loan amount, which can make your interest and monthly payments. Conventional loans often charge additional fees for myriad reasons, so make sure to read the contract carefully and discuss the details with the lender beforehand.
Mortgage insurance is required when getting a conventional loan with a low interest rate. The insurance policy is there to protect the lender in the event you default on the loan. VA loans, by contrast, do not require mortgage insurance.
These are the major points of comparison between VA and conventional loans. If you're a first-time homebuyer and eligible to use your VA loan benefit, consider these differences carefully to make the best decision.