Loan Options for Buying or Refinancing a Home:
VA Loans
How VA loans work
VA loans, like conventional loans, are offered through authorized lenders, such as your bank or financial institution. Lenders typically have less stringent qualification requirements for VA loans since the loans themselves are guaranteed by the VA. That means that if you default on your loan, the VA will step in and cover the lender for the rest of the loan. Therefore, there is little risk to the lender when offering a VA home loan. VA loans are available to former and current military personnel and to some of their surviving spouses.
Advantages of VA loans
VA loans are one of the only home financing options where qualifying borrowers do not need to provide a down payment. Because the loans are backed by the federal government, lenders often offer them at interest rates that are competitive with and even below those offered by conventional loans. That guarantee by the federal government also means that VA loans are easier to qualify for than conventional loans. If you have poor or little credit you may still be eligible for a VA loan. Loan limits are also comparable to conventional home loan limits. In most of the country, VA home limits are currently set at $510,400, but higher in high-priced cities.
Types of Loans
A conventional home loan is any loan not guaranteed by a government agency. These are by far the most common type of home loans and, if your credit score is good, they are the easiest to apply for. Conventional loans are divided into two categories: conforming loans and non-conforming loans. Since non-conforming loans, such as jumbo loans, are discussed on separate pages of this site, below we will look exclusively at conforming loans.
Military members and their families may be able to qualify for VA home loans. Started by the U.S. Department of Veterans Affairs (VA) in 1944, these home loans have enabled countless veterans to qualify for attractive home financing options. VA home loans are guaranteed by the VA and offered by VA-approved lenders. For qualifying borrowers, they could be a good alternative to conventional loans.
If you are looking to buy a luxury or high-priced home then you may want to look into applying for a jumbo loan. A jumbo loan is a mortgage that exceeds loan limits set by the Federal Housing Finance Agency (FHFA). As such, while they are a conventional loan in the sense that they are not insured by any federal agency, they are considered a non-conforming loan because they exceed federally defined loan limits.
FHA loans are a popular home financing option, especially for people with poor credit scores or low income. These loans are insured by the Federal Housing Administration (FHA), which is a government agency, and provided by FHA-approved lenders. While FHA loans are available to everybody, they are a particularly good choice for individuals who are having trouble getting approved for conventional loans.