Military Homebuyers Flock to Purchasing Power, Safety of VA Loans

(Editor's Note: The writer, Chris Birk serves as the Director of Content and Communications for Veterans United)

The VA Home Loan Guaranty program had a boom year in 2011, another sign of its growing importance as a simpler and cheaper path to homeownership than other lending options.

The VA backed about 360,000 mortgages last year, driven by a spike in refinance loans and the fact that conventional and even FHA financing has become increasingly difficult to secure for many military buyers. That total represents a 14-percent increase from 2010 and a whopping 168-percent jump since 2007.

Unlike conventional and FHA loans, VA loans require no down payment and no form of mortgage insurance. Veterans and active military without sterling credit and cash for a down payment have continued to flock to the VA program, which has helped more than 18 million people secure home financing since 1944.

"Being a military family, we don't have 20% savings to put down on a home, so it's worked out at each post we've moved to to use the VA loan," said Brooke Willis, a Raeford resident. "Buying and selling our homes within military communities has been a simple process and we've usually come out on top."

The safety and security of VA loans also continues to surprise people in the mortgage industry and beyond.  

“The continued strong performance and high volume of VA loans are a testament to the importance of VA’s home loan program and a tribute to the skilled VA professionals who help homeowners in financial trouble keep their homes,” said Secretary of Veterans Affairs Eric K. Shinseki in a recent press release.

Continued Growth

Lending requirements are still tough nearly six years after the housing market collapsed. Borrowers seeking a conventional mortgage need a solid credit score and the ability to put down at least 5 percent. Private monthly mortgage insurance is required for homebuyers who can't come up with a 20 percent down payment, which is a tall order for most military buyers.

Credit requirements are more forgiving for FHA-backed loans, but borrowers need at least a 3.5 percent down payment and pay both an up-front and annual mortgage premium. 

"Once the owner has equity in the home, the PMI can be cancelled to save some money," said one local realtor, Rhonda Sandey.

And it's this backdrop that makes VA home loans appealing to both new and old generations of veterans and active military. Prospective borrowers still have to meet reasonable lender credit requirements, but the lack of a down payment usually makes all the difference.

Safest Loan Program

The financial benefits help set the VA home loan program apart. But for the past this lending option has also been the safest on the market in terms of foreclosure and serious delinquency, according to the Mortgage Bankers Association. That includes even prime loans.

The VA remains committed to helping military buyers avoid foreclosure and stay in their homes. VA lenders are also encouraged to work one-on-one with borrowers to find a modification or repayment plan.

Given the near record-low interest rates and pending influx of service members back from service in Iraq and Afghanistan, the outlook for VA loans in 2012 and beyond appears bright.