VA Loan vs Conventional Loan for 15 year mortgage

When can a conventional loan beat out a VA loan? Myname is Evan Kauman, your VA loan originator. Often we’re talking about the benefits of a VA loan and how it can help serve veterans and active-duty members.

And while we’re big fans of the VA loan, no doubt about it, I am glad to recognize there are some instances where a conventional loan can actually edge out a VA loan and might be a better option for you.

Not only when you’ve used up all your entitlement, meaning you’ve used up all your ability to use a VA loan, then you have to switch to a conventional loan.

But even if you had your entitlement, a scenario where a conventional loan might edge out that VA loan is if you’re doing a 15-year mortgage.

Now, why is that?

Well, if you’re looking at 30-year mortgages, typically that VA loan interest rate is going to be significantly more competitive than a conventional loan.

If you’re working especially with a lender who works heavily with VA loans and offers good competitive rates on it, you’re going to see that VA loan interest rate be quite a bit better, and that offsets any of the pros and cons that you typically see between a VA and conventional loan.

However, if you’re going to do a 15-year mortgage, that is where generally you’re going to see conventional mortgage rates come down a decent amount.

Now, historically, you’ve seen a 30-year to a 15-year mortgage make a big difference on conventional loans.

Lately, with what’s called an inverted yield curve – where people are oddly paying more for short-term debt than long-term debt – it’s a unique scenario.

The 15-year change doesn’t have as big of a benefit on conventional loans, but it still has a benefit. And when we do that, we often will see that conventional rate get real close – right in line with a VA loan.

And the reason on that for the VA loan side that doesn’t have to get better is because from a 30 to a 15-year on a VA loan stays about the same.

Why?

Well, because the VA is making the same guarantee on a 15 as a 30.

Some lenders might vary their rates just a little bit, but it’s generally not as big as what you’ll see between a 30-year and a 15-year on a conventional loan.

And so, if you’re going to do a 15-year mortgage, sometimes comparing that conventional to VA can be really worthwhile.

The rates can really line up and get close to each other, and then it’s just a question of: hey, do I have that VA funding fee?

Remember, the VA funding fee is charged directly from the VA.

And so if you do not have VA disability compensation, you’re going to have this funding fee, and it can range anywhere from 2.15% up to 3%.

But if you put some money down, you can pull it down to 1.25% of the loan balance. But it’s still a pretty big fee overall.

Let’s just say it’s going to be that 2.15% and you’ve got a half-million-dollar mortgage. I mean that’s $10,000 right there, and if you went conventional, you wouldn’t have that.

If your rates are close, then it might make sense to go that conventional route.

That’s right. Typically on the 30-year mortgages, even if you’re subject to that funding fee, though, that savings can be pretty big on a VA loan versus a conventional loan.

We’ve seen anywhere from a quarter percent to a percent and a half difference. Typically a half a percent to a full percent isn’t really unheard of, and we see that very often.

So, usually, even if you’re paying that VA funding fee, it’s made up within a couple of quick years of having that lower interest rate on a VA loan, versus conventional.

But when you’re comparing 15 years, that interest rate gets really competitive on a conventional loan.

So, that’s just one of the few scenarios where we see conventional loans get real competitive with VA loans.

So hopefully, this helps you go out there and win a home with a VA loan or a conventional loan as well. My name’s Evan Kaufman, take care.