Are you considering buying a home? In that case, you should know that there are several types of loans for mortgages. However, choosing the right type of mortgage loan for your needs from the several options is challenging. The VA loan and conventional loan are the most common options for people.
But what is the difference between them? And, how do you choose the one for your needs? Read on to understand the differences between these two types of home loans so that you can make an informed decision. Alternatively, you can seek help from a reputable provider of VA loans in North Myrtle Beach, SC
Differences between VA loans and conventional loans
Below listed are the major differences between VA loans and conventional loans.
- In terms of property
If you are choosing a VA loan, the property or home should be your primary residence. You can’t buy a second home, vacation home, or even investment property with the VA loan. Conventional loans don’t need you to live in the home that you are purchasing. It means that you can use the loan to buy an investment property, rental home, vacation home, or a second home.
- In terms of credit score
Because VA mortgage loans are backed by the government, lenders offer a relaxed credit score requirement. While some lenders may need a credit score of 620, you may qualify for a 580 score with certain lenders. For conventional loans, the minimum credit score varies from one lender to another. However, you need at least a 620 credit score to qualify.
- In terms of mortgage interest rates
Another significant difference between a VA loan and a conventional loan lies in the mortgage interest rates. VA loans come with lower interest rates compared to conventional loans. Because VA loans are less risky, lenders can offer better interest rates than other types of mortgage loans. Hence, look for some of the best sources for VA interest rate reduction loans South Carolina.
- In terms of the Debt-to-Income Ratio
Typically, VA loans don’t have separate requirements for the Debt-to-Income ratio. So, the lenders make their requirements. Whereas, qualifying for a conventional loan requires only 50% DTI. If the loan is higher than 80% of the value of your home, the percentage could increase the loan premium.
- In terms of a down payment
Although some lenders may require a small down payment when you have a low credit history, there is no requirement for a down payment on VA loans most of the time. When it comes to conventional loans, lenders need at least 3%.
- In terms of mortgage insurance
There is no requirement for mortgage insurance on VA loans. But lenders will need you to pay for mortgage insurance on conventional loans. You need to pay the insurance until the equity in your home reaches 20%.
Conclusion
Both VA and conventional loans are some of the best ways to buy a home. The option that suits you best will depend on your finances, military services, and other factors. Still, if you are unsure, get in touch with one of the best VA loan lenders in South Carolina. They will help you narrow down your choices.
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