VA vs Conventional Rates

When comparing VA loan rates vs conventional loan interest rates, VA loans typically come out as the clear winner. For most, the only question is if they can qualify for a VA loan or not. If the answer is yes, it’s usually the clear way to go. But there are some exceptions such as if you want to buy a second home or investment home. Let’s take a closer look at the details of VA loan versus conventional loans so you can make the best decision for your situation.

Interest rates

Put VA loan rates versus conventional loan interest rates next to each-other, and VA loan rates typically come out ahead. For example, as of today, the average 30-year fixed VA loan rate is 3.750% while the average conventional 30-year fixed rate sits at 3.945%. (source) The VA backing helps to reduce the risk for lenders which results in a better rate.

Fees

VA loans do involve the funding fee along with other closing costs. However, the closing costs a buyer is required to pay are limited – and lenders and/or sellers often offer to cover a portion of the costs. Note, if the lender covers the costs, it may result in an increase in the interest rate. Conventional loans have many closing costs with fewer restrictions to protect buyers.

Down payment

VA loans offer the big benefit of zero required down payment while conventional loans typically require at least 3% down and up to 20%.

Property

When it comes down to the property type you can buy with each type of loan, VA loans require that it’s your primary place of residence. Conventional loans offer a bit more flexibility, allowing the loan to be used to purchase a primary home, second home, or investment property.

Mortgage insurance

VA loans come out ahead in the insurance department as you don’t have to pay a down payment and still don’t need mortgage insurance. With a conventional loan, mortgage insurance is typically required if your down payment is less than 20%.

Credit score

With loans backed by the VA, you don’t have to have a minimum credit score which is helpful for those with no credit or bad credit. Eligibility will be determined by each lender. See our VA loan credit requirements. Conventional loans require at least 620 in most cases.

VA vs Conventional - Which mortgage is best for you?

VA loans are a great fit for qualifying service members and their families who are looking to buy their primary homes. The costs are low and the requirements are flexible. For those who don’t qualify or want to purchase a second home or investment home, a conventional loan will likely be the better route.

If you have questions about either type of loan and the pros and cons, call 949-268-7742 to speak with one of the Senior VA Loan Technicians at SoCal VA Homes today! We are happy to walk you through the options to find the one that makes the most sense for you.