Blog posted On March 19, 2019
The VA Loan, a mortgage loan issued by lenders but partially insured by the Department of Veterans Affairs, has become the loan of choice for first-time home buyers who have served or are actively serving in the US military. In 2007, VA Loans were used by approximately 30% of first-time home buyers who were service members. By 2016, that figure has increased to 78%, with roughly three-fourths of all service members using a VA Loan to purchase their first home.
Before the Financial Crisis, nearly 60% of service members and Veterans had used conventional loans to purchase their first home. This figure dropped to 13% by 2016. Following the Financial Crisis, many prospective home buyers opted for government-insured or sponsored loans because of the more lenient credit standards and low down payment options. The CFPB reports, “VA-guaranteed loans offer the option to purchase with no down payment, no mortgage insurance, and provide stronger loan-servicing protection than many other mortgages.”
As VA Loan originations have increased, so has loan volume. In 2006, the median value of a VA Loan was $156,000 and in 2016, that figure had risen to $212,000. Additionally, early delinquency rates or the share of loans 60 days or more delinquent within the first year, are down. For non-prime borrowers, early delinquency rates are down from 7% in 2007 to 3% in 2016. Early delinquency rates have also dropped for prime borrowers.
The VA Loan is available to qualifying active-duty military, Veterans, and surviving spouses. The VA Loan is one of the rare mortgage options that is available with no down payment. The USDA Loan is also available with no down payment but has location and income restrictions. The VA Loan does not require monthly mortgage insurance or an upfront mortgage insurance payment. Other low-down payment and government-sponsored loans do require mortgage insurance. With the FHA Loan, available with down payments as low as 3.5%, the borrower must pay an upfront Mortgage Insurance Premium, plus mortgage insurance throughout the life of the loan. Some conventional mortgage products, are available with down payments as low as 3%, but they will require mortgage insurance until the loan meets a certain amortization rate. Then the mortgage insurance is cancellable.
If you have any questions about the VA Loan and its eligibility requirements, please let me know.