VA Loans vs. Conventional Loans: What Are the Differences?

There are many benefits to joining and serving in the United States military. From the GI Bill to a fabulous retirement system, the military offers its soldiers some great perks. One such advantage is the VA Home Loan. While many people have heard of it, not many understand exactly what it is or how it works. Read on to discover all there is to know about the VA loan program.

What is it?

A VA, or Veteran’s Administration, loan is one that is guaranteed by the government. The loan is available to all veterans of the military, regardless if they served in peacetime or during a war. The loan is also available to the unmarried widows or widowers of veterans who have died while on duty or as a result of service oriented disabilities. Should the borrower default on the loan, the government will pay a portion of the loan directly to the lender.

How much can I borrow?

Though there is no official cap on a VA loan, it is recommended that if you wish to purchase a home of more than $240,000, you go with a conventional loan. This is because there is currently a cap of that amount on the secondary market where most loans originate. Should you default on a $240,000, the amount of entitlement, or the amount the government guarantees it will pay back to the lender, is $60,000.

Am I automatically guaranteed?

The simple answer to this question is no. Though it may be easier to qualify for a VA loan, you will still be subject to the same credit requirements as a traditional borrower. If you have filed bankruptcy in the last two years and have yet to reestablish your credit, your chances for qualifying for a VA loan are slim.

What are the benefits to a VA Loan?

There are several benefits for borrowers taking out a VA loan rather than a conventional loan. In most cases, there is no down payment required with a VA loan compared to a conventional loan that may require up to 20 percent down. The lower your down payment with a conventional loan, the higher your private mortgage insurance (PMI) payments will be. These payments are not required with a VA loan. There is also a limitation on what a seller can charge you on closing costs. Many of the fees traditionally paid for by buyers must be paid for by the sellers. These benefits make a VA loan very appealing.

What can a VA loan be used for?

A VA loan can be used for the same types of purchases you would make with a conventional loan with one exception: you must occupy the dwelling that you purchase. If you already own a home, your VA loan can be used to make qualified home improvements.

To determine whether it would be in your best interest to utilize your VA loan for the home you intend to purchase, be sure to consult a mortgage professional. This person can give you more information and answer any questions that you may have. In many cases, a VA loan is more beneficial to the borrower than a conventional loan of the same amount.

About the Author: Kenny Alvarez is an advisor to military veterans and also writes for, a site which explores all the secondary education benefits to veterans and their dependents; for example, check out this information on Navy tuition assistance.

Related Post