When it comes to financing a home, choosing the right mortgage can be a complex decision. In 2024, prospective homebuyers are facing a range of options, with VA loans and conventional mortgages being two of the most popular choices. Both loan types have their benefits, but a critical factor in determining which is right for you is the interest rate.
In this comprehensive guide, we’ll break down the differences between VA loan rates and conventional mortgage rates in 2024, review current trends, make predictions for the rest of the year, and offer some expert insights on where the mortgage market might be headed.
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What Are VA Loans?
A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA). These loans are available to eligible veterans, active-duty service members, and some members of the National Guard and Reserves. The VA loan program aims to make homeownership more accessible to those who have served their country.
Key Benefits of VA Loans:
- No down payment requirement: VA loans often allow eligible buyers to purchase a home without a down payment, making it easier to get into a home sooner.
- No private mortgage insurance (PMI): VA loans do not require PMI, which can save borrowers thousands over the life of the loan.
- Competitive interest rates: VA loan rates are typically lower than those for conventional mortgages.
What Are Conventional Mortgages?
A conventional mortgage is a loan that is not guaranteed or insured by the federal government. These loans are offered by private lenders and can be either conforming (following guidelines set by Fannie Mae or Freddie Mac) or non-conforming (also known as jumbo loans).
Key Benefits of Conventional Mortgages:
- Available to more borrowers: Unlike VA loans, which are limited to military members and veterans, conventional mortgages are available to a wider pool of borrowers.
- Flexibility in property type: Conventional loans may be more flexible when it comes to the types of properties you can buy, including second homes and investment properties.
- No funding fee: VA loans require a funding fee, which helps sustain the VA loan program, while conventional mortgages do not have this fee.
VA Loan Rates vs. Conventional Mortgage Rates in 2024
In 2024, mortgage rates have been influenced by multiple economic factors, including inflation, Federal Reserve policies, and housing demand. Below is an overview of current VA loan and conventional mortgage rates, as well as trends to keep an eye on throughout the year.
Current VA Loan Rates (2024)
As of early 2024, the average VA loan interest rate is hovering around 6.15% for a 30-year fixed-rate mortgage. VA loan rates are typically 0.25% to 0.50% lower than conventional mortgage rates, largely due to the government backing these loans receive, reducing lender risk.
Current Conventional Mortgage Rates (2024)
For comparison, the average interest rate on a 30-year fixed-rate conventional mortgage in 2024 is around 6.50% to 7.00%, depending on the borrower’s credit score, down payment, and loan amount. Borrowers with excellent credit scores (above 740) may secure rates closer to the lower end of this range, while those with lower credit scores may see rates climb higher.
Rate Comparison Table (2024)
| Loan Type | Interest Rate (30-year Fixed) | Down Payment Requirement | PMI Requirement |
|---|---|---|---|
| VA Loan | 6.15% | No down payment | None |
| Conventional Mortgage | 6.50% – 7.00% | 5-20% | Required if <20% |
Predictions for VA Loan and Conventional Rates in 2024
Mortgage rate trends in 2024 are expected to be influenced by several factors:
- Federal Reserve Policy: The Fed has signaled that it may continue to adjust interest rates in response to inflation concerns, which could impact both VA and conventional mortgage rates.
- Economic Growth: If the economy continues to recover, demand for homes may increase, potentially putting upward pressure on mortgage rates.
- Housing Supply: A continued shortage of housing inventory could keep home prices elevated, which, combined with rising rates, may slow home buying activity later in 2024.
Mortgage underwriter, John Mitchell predicts, “We could see a slight uptick in both VA and conventional mortgage rates by mid-year, but rates should stabilize in the 6-7% range for the foreseeable future. The Federal Reserve’s policies will play a huge role in this, but I don’t expect any dramatic increases.”
Key Factors Impacting Mortgage Rates in 2024
Several factors influence the movement of mortgage rates, whether you’re considering a VA loan or a conventional mortgage:
- Federal Reserve Interest Rates: When the Federal Reserve raises interest rates, it becomes more expensive for banks to borrow money, which can lead to higher mortgage rates.
- Inflation: High inflation typically leads to higher mortgage rates, as lenders raise rates to maintain their profit margins.
- Global Events: Geopolitical tensions, economic downturns, or pandemics can affect global markets and lead to fluctuations in mortgage rates.
- Demand for Homes: As demand for homes rises, mortgage rates can increase. If demand drops, lenders may lower rates to attract more borrowers.
Why Are VA Loan Rates Lower Than Conventional Rates?
There are several reasons why VA loan rates tend to be lower than conventional mortgage rates:
- Government backing: The VA guarantees a portion of each VA loan, reducing the risk for lenders. This allows lenders to offer lower rates because they know that part of the loan is backed by the government.
- No down payment required: While conventional loans often require a significant down payment to qualify for the best rates, VA loans allow eligible buyers to secure lower rates without putting any money down.
- No PMI: Since VA loans do not require private mortgage insurance, lenders are able to offer more favorable rates without the additional risk associated with low down payments.
VA vs. Conventional Loan Features
| Feature | VA Loan | Conventional Loan |
|---|---|---|
| Down Payment | None required | 5-20%, depending on lender |
| Interest Rates | Typically 0.25% – 0.50% lower | Higher, especially with low credit |
| PMI | Not required | Required if down payment <20% |
| Eligibility | Veterans, active-duty, reserves | All borrowers |
| Funding Fee | Required | None |
Who Should Consider a VA Loan?
A VA loan is typically the better option for borrowers who meet the eligibility requirements. Here’s why:
- Lower rates: VA loans generally offer lower interest rates, which can lead to significant savings over the life of the loan.
- No down payment: If saving for a large down payment is difficult, a VA loan allows eligible borrowers to finance 100% of their home’s value.
- No PMI: VA loans save borrowers money by eliminating the need for private mortgage insurance.
Loan Officer with Rocket Mortgage, Sarah Williams says, “For veterans or active-duty service members, VA loans are hands-down the best option in terms of affordability. With lower interest rates and no PMI, there’s little reason to go with a conventional mortgage unless you’re looking at a unique property that doesn’t qualify under VA guidelines.”
Who Should Consider a Conventional Mortgage?
A conventional mortgage may be a better fit in certain situations:
- Higher down payments: Borrowers who have a down payment of 20% or more may benefit from a conventional mortgage, as it allows them to avoid PMI without needing to pay a VA funding fee.
- Property types: VA loans are typically restricted to primary residences. For borrowers looking to purchase second homes or investment properties, conventional loans provide more flexibility.
- Non-military borrowers: Conventional loans are available to all borrowers, regardless of military status.
The Bottom Line
In 2024, both VA loans and conventional mortgages offer viable paths to homeownership, but the choice largely depends on individual circumstances. For eligible veterans and military personnel, VA loans often offer the most competitive rates, especially when combined with the lack of a down payment requirement and the absence of private mortgage insurance. For borrowers outside of the military or those with specific property needs, conventional loans offer flexibility, albeit at a slightly higher cost.
Whether you’re considering a VA loan or a conventional mortgage, it’s important to shop around and compare rates from multiple lenders. The difference in rates—even a fraction of a percent—can add up to significant savings over the life of your loan.
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By staying informed about mortgage rate trends and understanding the differences between VA and conventional loans, you can make the best financial decision for your home purchase in 2024.
