VA Versus Standard Mortgage Loans – Which is Best?

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When it comes to homeowners’ mortgages, it can often feel like there are too many options to choose between. There’s so much to think about:  different loan terms, the changing property market, lending options, interest rates – and, if you’re a US army veteran, VA loans.

What is a VA loan?

A VA loan is an alternative to a conventional mortgage, offered specifically to military personnel as a means of providing additional assistance in the house buying process. Those who serve in the army or are army veterans may face extra challenges when it comes to mortgaging a property, and VA loans are on hand to simplify the process and reduce financial burden.

The key difference between a VA loan and a standard homeowners’ mortgage is that VA loans are offered by the government, and are supported by the  US Department of Veterans Affairs (take a look at the  Best VA Loans of 2019 for an idea of the choice you have). Standard mortgages tend to be offered by private bodies, such as banks, credit unions, loan institutions and mortgage brokers.

If you’re facing the choice between purchasing a property with a VA loan or a standard mortgage, here are a few things worth considering:

  1.       Government payment assistance

The government guarantees VA loans, which means they’ll step in to repay a portion of your loan if you’re struggling through a period of financial difficulty. Standard mortgages work differently: if you default (meaning you’ve missed a payment), you’ll be noted as a late payer and your lender will usually add a late payment fee onto your next agreed payment.

  1.       Down payment requirement

Standard mortgages all require a down payment, and it’s your decision how much to pay. The absolute minimum for most properties is 5% of the property’s overall cost, although most lenders will expect you to be able to pay around 15-20% upfront. The higher your down payment, the better interest rates you’ll get. VA loans, on the other hand, require no down payment at all. You can choose to pay one if you’d prefer, but there’s no obligation to do so.  

  1.       Credit score

Conventional mortgage lenders will look at your credit score before deciding whether you’re financially responsible to take out a mortgage. If you have a low score, you risk not being accepted at all – or if you are, your interest rates will be higher. VA loans, however, don’t consider your credit score anywhere near as meticulously. You can be accepted for a VA loan with a far lower credit score than a standard mortgage lender would allow. Providing your score is above 620, you should be fine.

  1.       Private mortgage insurance

Insurance worms its way into everything, and mortgages aren’t exempt. If you choose to take on a conventional mortgage, you’ll usually have to get yourself a private mortgage insurance. This doesn’t offer you any sort of protection – it’s there for your lender if you’re unable to pay off your loan to the agreed terms. VA loans don’t require private mortgage insurance, which keeps the costs down on your end. 

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