Choosing between a VA loan or a traditional loan may not seem like a complicated decision. A VA mortgage should clearly have the advantage because you don’t have to put any money down, or deal with mortgage insurance. You can also receive a better interest rate with a VA mortgage.
However, when you consider other variables, the choice may not be as easy as it seems. Additionally, many of the VA loan benefits have been overstated. Here are some other factors to consider when you are trying to figure out whether to choose a traditional loan or a VA loan.
One of the major factors to consider in the VA vs traditional loan debate is the type of property that you are buying. The VA loan is for a person’s main residence. However, a traditional loan can be used to buy a secondary home or even a vacation home. You can also use it to purchase rental or investment properties.
VA loans are normally offered without requiring you to make a down payment. A lender may require you to pay some money up front if the price of a property exceeds its market value. That may occur in a competitive housing market. Lenders who offer traditional loans have preferred larger down payments, though that amount continues to get smaller and smaller.
Depending on your down payment, a traditional loan mandates that you pay for private insurance, which covers the lender just in case you default on the loan. The insurance could be a simple charge that you will pay at closing, or it could be an ongoing fee that you pay every month. The fee on the private mortgage insurance is based on your credit score. VA loans do not require you to pay for mortgage insurance.
Dealing With Additional Fees
A VA loan comes with a fee to offset loan costs. The charge is based on how much money you pay up front, length, and military service branch. The Veterans Affairs department has noted that veterans who receive compensation for being disabled do not have to pay the funding fee.
The Veterans Affairs Department claims that VA insured loans do not have a specific credit score that lenders must have in order to qualify for the loan. However, research has shown that most VA lenders want applicants to have credit scores of at least 600.
Debt To Income Ratios
While there is no maximum debt to income ratio, a lender may be obligated to show compensating factors; such as residual income, if the total debt is large. Qualifying for A VA Loan is not as easy as one would assume.
Remember to do your research and take your time before making a decision.