Thinking Beyond VA Loans: 3 Alternatives Worth Considering

Posted by Lauren Schneider on Friday, December 17th, 2021 at 7:31am.

VA Loan Alternatives to ConsiderVA mortgage loans are a very valuable benefit available to service members, but there are situations in which they aren't the best choice for military homebuyers. For example, when managing an investment property in the military or saving VA loan entitlement for later use, it may be best to research other mortgage options. Fortunately, there are other options that service people can take advantage of other than a VA loan for home buying. Keep reading to learn about alternatives to VA loans that are worth considering.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

FHA Home Loans Vastly Differ From VA Loans

Loans issued by the Federal Housing Administration (FHA) can be viable options for buyers who don't qualify for a VA loan or cannot utilize their VA loan options. FHA loans typically require a minimum down payment of 3.5 percent, whereas VA loans typically don't require one.

Another difference is that VA mortgages don't require buyers to carry private insurance, and loan funding fees are typically waived, which is not the case with most FHA loans. Even with those perks, buyers may already have used their loan entitlement, desire to save it for a later date, or they may want to have a second property.

These are all excellent reasons to go with an FHA loan, which is also government-backed and can be paid off early. There are options similar to VA loans, such as FHA Streamline Refinancing, so there are instances in which service members should choose an FHA loan instead of VA loan.

Consider a USDA Loan

The U.S. Department of Agriculture (USDA) offers two types of home loans: Multifamily Home Loans and Single Family programs, also known as the USDA Section 502 Guaranteed Loan Program. The Single Family program is the most popular choice for buyers looking to invest in a multi-family property to build their financial portfolio.

USDA loans are often the best route for those who still haven't paid off an existing mortgage and don't have full entitlement. Again, some vets and military members prefer to wait until retiring from service to find a forever home and opt to save their VA loan eligibility until then.

Conventional Mortgages Versus VA Home Loans

While conventional mortgages are a good alternative for some buyers, they are typically less accommodating in terms than VA loans, particularly concerning credit ratings, down payments, and insurance requirements.

The down payment requirements for a conventional home loan may be as much as 20 percent to avoid private mortgage insurance. However, some programs offer initial payments as low as 3 to 5 percent of the loan amount for first-time buyers and lower-income households. VA Loans are typically free of down payment requirements.

Other perks to conventional home loans are being utilized to buy investment properties such as multi-family properties, second single-family dwellings, and other real estate investments. That being said, there are some drawbacks some service persons may face when seeking traditional mortgages. These include:

  • Applicants may be required to have a FICO score of 620 or higher.
  • Down payments are higher compared to government loans.
  • PMI insurance is required with down payments lower than 20 percent.
  • Various documents to confirm assets, income, employment, and financial stability are needed.
  • The debt-to-income ratio cannot be more than 50 percent.

The differences between traditional loans and VA loans are significant, but they could be the most viable option for some buyers.

Need Help Finding the Right Alternative to a VA Loan?

Whether one is retired, active, or a disabled military member, VA loans when buying a home are attractive. Yet, there are occasions when taking advantage of eligibility isn't viable or desirable. These options give buyers the power to choose the right mortgage for their needs, but these big decisions tend to be more successful when an experienced real estate professional is consulted. Also, be sure to talk to a VA loan representative, who can also be helpful during the process.

For informational purposes only. Always consult with a licensed mortgage or home loan professional before proceeding with any real estate transaction.

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