With rare exceptions, you won’t qualify for a conventional mortgage with a credit score lower than 620, no matter the lender. But you may be able to get a VA loan with a lower score. You also don’t have to make a down payment and you don’t have to pay PMI, an extra fee that borrowers with small down payments using conventional loans normally pay every month for years.
While you’re researching this type of mortgage, you’ll probably read that VA loans have lower interest rates than conventional loans. That’s not necessarily true, so you’ll want to compare all your options. Look at the annual percentage rate instead of the interest rate to understand the loan’s true cost.
A 30-year conventional mortgage is slightly cheaper today than a 30-year VA mortgage, on average. But specific lenders—particularly those who cater to veterans and active duty personnel—may offer lower interest rates than on conventional loans. In most cases, VA loans require a one-time VA funding fee at closing, something you won’t encounter with a conventional home loan. However, if you can’t put 20% down on a conventional loan, a VA loan may be a better deal.
VA Loan Limit
VA loan limits received a massive increase in 2022. The standard VA loan limit in 2022 is $647,200 for most U.S. counties, increasing from $548,250 in 2021.
VA Loan Eligibility
In general, you will qualify for a VA home loan if you served in the Army, Navy, Air Force, Marine Corps or Coast Guard after Sept. 15, 1940. You must have served for at least 181 continuous days during peacetime or at least 90 days, any part of which occurred during wartime. If you were dishonorably discharged or did not serve long enough, you may not be able to get a VA loan.
National Guard members and reservists qualify if they are mobilized for active duty for at least 90 days or discharged because of a service-connected disability. They also qualify after six years of honorable service.
You’ll need a certificate of eligibility to participate in the VA loan program. You can apply for your COE online or by mail, or your VA lender can get it for you.
Surviving spouses also can sometimes get VA loans if their husband or wife passed away while serving or due to a service-related disability, became a prisoner of war or went missing in action.
In addition to meeting military service requirements, you’ll also have to meet financial requirements. You will need to demonstrate that you’ll be able to pay your mortgage, but a bankruptcy that was discharged two or more years ago will not disqualify you.
How to Apply for a VA Loan
The VA itself does not issue loans, so you’ll need to apply with a bank, credit union or mortgage lender. Not all lenders offer VA loans, but many do. Some even specialize in VA loans.
You don’t have to work with a VA loan specialist, and they won’t necessarily offer you a better loan than another lender who offers VA mortgages. A specialty lender may give you a more streamlined experience because of their expertise. That said, you should not pay a higher interest rate or more closing costs to work with a VA loan specialist.
Pros and cons of a VA loan
There are a lot of VA benefits that make these mortgages the right choice for veterans. But no loan program is perfect, and even VA loans have their downsides.
If you have good credit and plenty of savings, you might choose a conventional mortgage over a VA loan. Putting down 20% on a conventional mortgage means you skip private mortgage insurance (PMI) and the VA funding fee, so you’ll save money all-around.
And if you have excellent credit, you may score a low interest rate on the conventional loan as well.