Category: Kentucky VA Farm Loan Guidelines

What Is a Conventional Loan and How Does It Compare to a VA Loan?


We recognize that our veterans provide an invaluable service. As such, we fully support home loan programs guaranteed by the U.S. Department of Veterans Affairs that are specifically designed to support veterans and their families. Although there are many perks that come with a VA versus conventional loan, a conventional loan offers some benefits that are not available through a VA loan. Let’s compare both of these loans to determine which type is best for you. 

What Is a VA Loan?

A VA loan is a great benefit for those who have contributed to their country by serving in a military capacity. It is intended to give veterans access to home loans with advantageous terms. The federal government guarantees a portion of the loan, enabling veterans to qualify for more favorable terms when working with private lenders. The VA loan program was designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). In addition to helping veterans buy, build, repair, retain or adapt a home for their own personal occupancy, it was also created to help veterans purchase properties with no down payment. 

What Are the Pros and Cons of a VA Loan?

There are a myriad of reasons why a veteran would want to choose a VA Loan. A VA loan is federally backed. It also offers lower interest rates and fees than are usually associated with home lending costs. The only cost required by VA loans is a funding fee of one-half of one percent of the total loan amount. And that may be paid in cash or rolled into the loan amount. However, there are some factors you will want to take into consideration when deciding if a VA Loan fits your home buying needs.

  1. No Private Mortgage Insurance (PMI) or Down Payment Necessary. Eliminating these costs can significantly reduce total housing expenses. Typically, a lender requires a 20% down payment. Borrowers who are unable to put down 20% are considered riskier and as a result must pay a PMI, which is typically 0.58% to 1.86% of the original loan amount per year on a conventional home loan. Because VA loans are federally backed, lenders do not have to worry about the house going into foreclosure and are able to offer a mortgage plan that does not require a PMI without a down payment. 
  2. Interest Rate Reduction Refinance Loan (IRRRL): IRRRL loans are typically used to reduce the borrower’s interest rate or to convert an adjustable rate mortgage (ARM) to a fixed rate mortgage. Veterans may seek an IRRRL only if they have already used their eligibility for a VA loan on the same property they intend to refinance. However, your lender can use the VA’s email confirmation procedure for interest rate reduction refinance in lieu of a certificate of eligibility. Additionally, an IRRRL can reduce the term of your loan from 30 years to 15 years. An IRRRL offers great potential refinancing benefits for vets, but be sure to check the facts to fully understand IRRRL stipulations and avoid an increase in other expenses. 
  3. Native American Direct Loan (NADL) Program: This program was designed to help Native American veterans or spouses of Native American veterans buy, build, or improve a home on federal trust land. This loan also qualifies veteran home buyers for the benefits listed above, in addition to limited closing costs and a low-interest, 30-year, fixed mortgage. Plus, this is a reusable benefit, which means you can get more than one NADL to buy, build or improve another residence in the future.
  4. Adapted Housing Grants. To qualify for an adapted housing grant, veterans must own or will own the home they are looking to buy, and have a qualifying service-connected disability. This loan is a great option for veterans who are seeking to make home modifications to accommodate a disability. Currently, if you qualify for a grant, you can get up to a maximum of $100,896. 
  5. Funding Fee and Closing Fees. A VA loan funding fee may vary depending on whether you put a down payment on a house. Depending on if you are a first-time VA loan borrower or making a subsequent loan purchase, a funding fee can range from roughly 1.5% on a down payment of 10% or more to 3.5% on downpayment of 5% or less. Closing fees on a house can range from 2–5%. These are definitely costs you will want to consider when determining how much home you can afford.
  6. Property Eligibility. A VA loan may not be applied to purchasing a farm, property in a foreign country, land or an investment property/second home. 

What Is a Conventional Loan and How Does It Compare to a VA Loan?

Conventional mortgage loans are some of the most commonly used housing loans. However, they are not guaranteed by the federal government, so borrowers who are not putting 20% on a down payment will likely incur the costs of a PMI. Unlike government-backed loans, conventional loans are not limited by geographic constraints. They can offer more flexibility than a government-insured loan but may be harder to qualify for and require a higher credit score (at least 620). 

For veterans, the main advantage of this loan compared to a VA loan is that it provides options that may fit a wider range of home-buying needs. Here are some benefits of conventional loans:

  • Usable for purchases, rate and term refinances and cash-out refinances
  • Allow cash out up to 80% of your home’s value
  • Debt to income ratios allowable up to 50%
  • Usable for primary, secondary or investment properties
  • Applicable for condos, single family homes and up to 1–4 unit properties
  • First-time home buyer programs with as little as 3% down payments
  • Options both with and without escrows or impounds

Request a Customized VA Approved Condo Report for Kentucky VA Mortgage Loans. See link below

KENTUCKY VA APPROVED CONDOS LIST

VA Condo Approval List Below

👇 click link below for list

Kentucky VA Condo Approval List

Kentucky VA Mortgage with Seller Concessions for Closing Costs and Paying Off Debts Guideline


The max seller paid closings costs on a Kentucky VA loans is 4% and with the concessions that can include payoffs of credit balances: 

👇

VA Mortgage Seller Concessions Rule

The Department of Veterans Affairs defines a Seller Concession as “…anything of value added to the transaction by the builder or seller for which the buyer pays nothing additional and which the seller is not customarily expected or required to pay or provide.“

The seller’s paying of the buyer’s closing costs is not considered a Seller Concession.  A Seller Concession is considered anything paid to the buyer outside of the normal closing costs that is offered to make the sale more attractive to a buyer.  These concessions often come in the form of the seller paying such pre-paid items as the Homeowners Insurance premium or the amount needed for property tax escrows.

Another common concession is the seller agreeing to pay the VA Funding Fee on behalf of the veteran or paying the lender discount points to buy down the interest rate on the Veteran’s new VA mortgage.  VA Funding Fees are typically financed by the Veteran, so when the seller agrees to pay this cost, this fee does not need to be financed, resulting in lower loan amount and lower payment for the Veteran.  By paying discount points to buy down the Veteran’s interest rate, the result can be savings in the thousands over the life of the loan.

These Seller Concessions can even include such items as appliances, TVs, furniture, lawn mowers, etc.   If such items are used they need to be listed with a reasonable value assigned to each.

One of the more interesting Seller Concessions allows for the seller to payoff a borrower’s liability, such as a collection, a judgement or a credit balance.  Sometimes there is a particular account on a credit report that is preventing a potential home buyer from qualifying for a mortgage.  Paying off this account can be offered as a Seller Concession and make the difference between the buyer qualifying and not qualifying for a VA mortgage.

Seller Concessions often include the following…

  • paying the pre-paid items such as insurance premiums and tax escrows
  • paying the VA Funding Fee
  • offering such gifts as TVs, appliances, furniture and other houshold items which are not typically included
  • paying off a borrower liabilty such as a collection, judgement or credit balance

Is there a limit to the amount of Concessions a Seller can offer?

The Department of Veteran Affairs has capped the amount of Seller Concessions to 4% of the sales price. 

Why is their a 4% cap on Seller’s Concessions?

The intent with the cap is to offer protection to the Veteran against overly aggressive Seller Concessions which may tempt Veterans into attempting the purchase a home that may really stretch their budget beyond true affordability.

Wait a minute… you mentioned some items like appliances, TV and furniture can be offered as Seller Concessions, how do we know how much these are worth to make sure their value is within this 4% cap?

For sellers to properly offer such concessions they must provide the buyer and lender with an itemized list of the concessions to be offered.  The list needs to make sense and be reasonable.  Claiming a 46″ LCD TV is worth $5000 would certainly raise an eyebrow.  The list is subject to approval by the VA so make sure these types of concessions are reasonable and fall within the 4% cap.

So just to confirm……If a seller pays any of the buyer’s closing costs it is not considered a Seller’s Concession?

That is correct.  The seller can pay all of the buyer’s closing costs without limit and these closing costs are not included in the Sellers Concession 4% cap. If there are closing costs that are considered excessive or are not typical for the area, they can be then included in as a Seller Concession.   Since the VA also allows the seller to pay these costs without limit, the result is that the Veteran can often come to the closing table with no money needed.

Thank you,