Confused between VA loans and Conventional Loans? Here’s Some Help

Buying a home in Texas may top your list of New Year resolutions. The colorful culture, mouthwatering food, the plethora of employment opportunities and of course attractive homes, makes this state a dream destination to settle down in for many Americans. However, one of the major hurdles that prospective homeowners face is financing the entire investment, especially if you are an active military member or veteran.

This is where VA home mortgage loans play a crucial role. Despite the numerous advantages that VA loans offer, it has been shown that many veterans don’t apply for one. In 2004, VA loans accounted for only 2% of all mortgage loans in the U.S. The scenario improved in 2014, as the number increased to 8%.

One of the key features of VA loans is that it doesn’t require any down payment. Also, the VA loan rates in Texas are quite competitive as compared to conventional home loan programs. For instance, you may get a conventional loan with a low down payment, but the interest rate will be higher due to the higher risks involved.

Why VA Loans?
Here are just a few reasons you might want to choose a VA loan over a conventional loan:

No Downpayment - In recent times, lenders are asking for 10%-20% down payment for a conventional loan. VA loans are backed by the federal government, as a result, banks don’t require a down payment.

No PMI – A VA loan is backed by the government so that lenders don’t need private Mortgage Insurance (PMI) in the loan amount. This is an added expense that is required for conventional loans.

Lenient Qualification Standards - The qualification standards vary for different loans. The government-backed VA loans have less stringent qualification standards as the banks assume less risk.

Assigning an Interest Rate
There are several factors that are evaluated when assigning an interest rate for VA loans. Credit score, loan amount and lender’s fee charged to the veteran and the tenure for which you need the loan are some of the essential factors that are considered. VA loans don’t require a specific credit score but most lenders ensure that it is not lower than 620. A higher credit score ensures a better loan interest rate.

The lock-in period also plays an important role in determining the loan rate. The rates on the loan can vary from day-to-day, and at times even intra-day. This is the reason why it is essential to get the rate quotes on the same day and time.