VA loans have long been a key benefit for veterans, offering no down payment, competitive interest rates, and no private mortgage insurance (PMI). But today, some veterans are choosing conventional loans instead. This might seem surprising at first, but there are several good reasons behind this decision—especially in today’s fast-paced real estate market.
Understanding the VA Funding Fee
One major factor is the VA funding fee. This is a one-time fee that ranges from 1.4% to 3.6% of the loan amount. While it can be rolled into the loan, it still adds to the total cost of borrowing. For some veterans, especially those not exempt from the fee, this cost makes conventional loans more appealing—especially when they can put money down or qualify for better rates based on their credit profile.
Property Restrictions with VA Loans
VA loans also have specific property requirements to ensure homes are safe and structurally sound. While this protects buyers, it can limit their choices. Homes that need minor repairs or don’t meet VA guidelines may not qualify, which can lead veterans to consider conventional loans for more flexibility in home selection.
Speed Matters in Hot Markets
In many housing markets, homes sell quickly. Conventional loans can often close faster than VA loans, which sometimes involve extra steps for appraisals and approvals. When time is critical, veterans may choose conventional financing to make their offers more appealing to sellers.
Reaching the Entitlement Cap
VA loans are subject to entitlement limits. Veterans who have used part of their entitlement before or who are buying higher-priced homes may not have enough remaining entitlement to cover their purchase. In these cases, a conventional loan may be the only option without requiring a larger down payment.
High-Priced Homes and Jumbo Loans
Veterans buying luxury or high-value homes may find that the purchase price exceeds VA loan limits. To finance these properties, a jumbo conventional loan may be necessary. While these loans have stricter credit requirements, they offer a way to finance homes that exceed VA limits.
Making the Right Choice for Your Situation
The decision between a VA loan and a conventional loan isn’t one-size-fits-all. It depends on your financial goals, the property you're buying, and the dynamics of the local housing market. According to a 2023 Mortgage Bankers Association survey, about 8% of veterans chose a conventional loan over a VA loan—showing that the “right” loan depends on individual needs.
If you're a veteran thinking about buying a home, now is a great time to explore your options. Both VA and conventional loans offer strong benefits—it’s all about choosing the one that fits your goals best.
Ready to explore your mortgage options as a veteran? Contact me today to compare VA and conventional loans and make the choice that fits your goals.