Overview of a VA Loan vs Conventional Loan

If you’re like millions of potential home buyers, then buying a home represents one of the most significant financial decisions you’ll most likely make in your life. But purchasing a home is hard work. From finding the right home to choosing the right mortgage loan program that makes the most sense for your situation. When searching for a home loan for your home buying needs, you may come across two mortgage financing options in your search: conventional and VA loans. If you’re a member of the US Armed Forces (serving or retired), then you may be eligible to get a VA loan to finance your home purchase.

What are VA loans?

Introduced as part of the GI Bill in 1944, a VA loan is a type of home loan insured by the US Department of Veterans Affairs. VA loans are designed to help US veterans, active-duty service members, and widowed military spouses buy a house. One key fact about VA loans is that they are not issued by the Department of Veteran Affairs to the home buyer directly but by private lenders like mortgage companies, banks, and even credit unions. For example, based on government data in 2021 Alaska USA Federal Credit Union (AKUSA) guaranteed 880 VA loans for a total of $290 million while regional bank Ephrata National Bank guaranteed 11 loans for a total of $3 million. Since its introduction, the VA has insured more than 24 million VA loans.

Who Qualifies for a VA loan?

There is very detailed criteria for service requirements to be eligible for a VA loan, and it varies depending on whether you’re a veteran, on active duty, a national guard member or a reserve member. Check out the VA government website for the specific requirements. Financially, there is no minimum credit score required by VA, but it is common for lenders to request a FICO score of 620 and above. Most lenders will want to see a maximum DTI ratio of not higher than 41%. If higher than 41%, you may need to have excellent credit history and liquid assets.

A VA appraisal of the property might also be required. The property must be considered safe, sanitary, and sound according to the VA guidelines

VA loan is only an option on a home that you plan to live as your primary residence. However, it is possible to use a VA loan to buy a multi-family property of up to four units as long as you plan to make one of the units your primary residence. While this option is only open to a very specific segment of the population, for those that qualify it is an attractive alternative worth considering.