If you are a veteran you will be pleased to learn that despite Covid-19, loans to veterans are soaring. The VA loan program originated a record 1.2 million loans in 2020 alone. That's up from 624,544 in 2019. VA loans are guaranteed by the U.S. Department of Veterans Affairs (VA), although they are issued by private lenders like banks, credit unions, and other mortgage providers. VA loans are available to military veterans, active service members, and some military spouses.
Chris Birk, Vice President of Mortgage Insight and Director of Education for Veterans United Home Loans explained one of the primary draws of a VA loan -- buying a house with no down payment. "Conventional mortgages often require a minimum 5% down, while FHA loans come with a 3.5% down payment. On a $300,000 loan, buyers would need at least $15,000 in cash for a typical conventional down payment and $10,500 for an FHA loan. Those aren't small sums, especially for many veterans and active duty service members."
VA borrowers also get to skip the dreaded mortgage insurance payment. While some other government-backed loans and conventional mortgages require a borrower to pay mortgage insurance if they put less than 20% down on a property, the VA does not charge the same monthly fee. This benefit alone can save home buyers thousands of dollars.
"VA loans were built to open the doors of homeownership for veterans who might otherwise struggle to secure home financing. Part of that commitment is having more flexible and forgiving credit guidelines than other loan types," Birk said.
Birk says that one way VA loans open those doors is by allowing for a lower minimum credit score than most loan types. This allows veterans to bounce back faster into homeownership in the wake of adverse credit events like bankruptcy, foreclosure, or short sale.
Veterans also have access to the most competitive interest rates in the industry. According to data from Ellie Mae, VA loans have offered the lowest fixed interest rate on the market for the past five years.
Millennials and Generation Z fuel growth
Heading into the beginning of the Great Recession of 2007, VA loans accounted for approximately 2% of the mortgage market. Today, they represent about 10%.
Birk explained why: "Financial necessity has certainly played a role in that growth. Many lenders tightened their guidelines in the wake of the recession. Finding it difficult to meet new, higher requirements for credit score and down payment, veterans and service members started turning to their VA loan benefit in waves."
Millennial and Generation Z veterans accounted for half of all VA purchase loans in 2020, meaning veterans from the ages of 18 to 38 are the driving force behind VA loans' growth. Birk says that VA loans allow younger veterans the opportunity to buy a home right away, rather than forcing them to spend years saving a large down payment and building top-tier credit.
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