The VA Home Loan Program offers significant benefits for U.S.
veterans and as a result has seen a rapid rise in popularity in the past
several years. With unique terms not available to civilian borrowers, these
home loans have seen a meteoric rise in demand and have become much more
prevalent within a relatively small timeframe.
Over the past five years, VA home loan demand has
skyrocketed, rising 71% in terms of VA home purchases from 2007 statistics and
seeing a 20-fold increase for mortgage refinances. During the 2012 fiscal year,
the VA guaranteed a total of 540,000 mortgages, constituting nearly a third of
the currently outstanding 1.7 million VA mortgage loans.
This phenomenon can be attributed to several key
factors. For instance, with the disappearance of the subprime mortgage market,
VA loans comprise one of the very few remaining loan programs which offer the
advantage of no required down payment, thus attracting many young veterans and
active-duty servicepersons with rigid budgets. Currently, 90% of VA mortgages do
not include any down payment.
Credit Score Leniency and Streamline Refinances
The VA credit
qualifications are much less strict than the majority
of conventional loans. Last year, the FICO credit score for VA mortgage
borrowers averaged approximately 708, while credit scores for conventional loan
borrowers averaged within the 750-770 range due to the conforming guidelines
set in place by Fannie Mae and Freddie Mac. In contrast, the VA does not enforce
a minimum credit score requirement.
In terms of refinancing, VA loan refinances
have surged as a result of ease in which these transactions may be performed. Basically,
the VA offers a streamline refinance; as with the FHA, this specialized
refinance, known as the Interest Rate Reduction Refinance Loan (IRRRL), allows
borrowers to refinance with minimal verification, in terms of credit score,
income, and employment. The process works so smoothly that it is almost
automatic, although only borrowers who have kept current on their monthly
mortgage payments will be eligible for this refinance program.
Furthermore, VA-eligible borrowers can
secure a streamline refinance even when underwater on their mortgage, which has
impeded a large number of borrowers in recent years and which has necessitated
the creation of the Home Affordable Refinance Program (HARP).
Eligibility Extended
In addition to the ease of refinancing
and the exclusive zero-down payment benefit, VA loans have also seen a rise in
popularity as a result of the extended eligibility standards which have been
put into place. Last August, the Obama administration expanded VA eligibility
to include the surviving spouses of veterans whose deaths were not judged as
“service-related.” In addition, this bill also expedited the application and
approval process for veterans applying for a disability waiver.
Created in 1944 as a portion of the GI
Bill of Rights for veterans returning from WWII, the VA Home Loan Program
recently announced its reaching 20 million home loans guaranteed under the
program, marking a new milestone for military home loan benefits. The 20
millionth guaranteed mortgage was secured in Virginia by the surviving spouse
of an Iraq War veteran who passed away in 2010, according to the Department of
Veteran Affairs.
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