As there are many military personnel and retirees throughout Tampa Bay, it is important for first-time homebuyers to review and understand the differences between VA and conventional loans. Each accomplishes the same thing; however, depending on your situation, one may be better than the other.
1. Down Payment Requirements
For many first-time homebuyers, coming up with the down payment is the biggest obstacle to purchasing a home. However, if you’re eligible for a VA loan, you don’t need a down payment due to 100% financing. With a conventional loan, you will need a down payment. It could range between 3% and 20% of the home's purchase price.
2. Rates
Although your credit score ultimately influences your interest rate, you will likely find that overall rates are lower with VA loans. This is because the government backs the VA loan. One requirement, though, is a credit score of at least 620 to qualify for a VA loan.
3. Fees
There are many fees associated with any loan. One fee you’ll pay with a VA loan that doesn’t exist with a conventional loan is the VA funding fee. This can be as much as 3.6% of the loan amount. This fee may impact the total you’ll need to bring to closing for the closing costs, or it will influence the amount you finance if you choose to roll some of the fees into the loan itself.
There is one fee you’ll avoid with a VA Loan: Private Mortgage Insurance (PMI). PMI is required on all conventional loans unless you have more than 20% equity in the home. PMI costs vary from about half a percent to one percent of the loan’s value. If you don’t have 20% to put down on your purchase, you may find that the VA funding fee will cost less over time than the PMI associated with a conventional loan.
4. Occupancy
If you’re still active duty and plan on living in your home only while you’re stationed locally and renting it out the next time you’re transferred, you may want to consider a conventional loan. VA loans are only allowed for primary residences.
No matter which type of loan you ultimately decide is best for your situation, Jason Duraj and his team at Future Home Realty can help you find the right home. We truly appreciate your service and offer you a free confidential consultation in person or over the phone at (813) 992-7771.
