Volume Soars, But VA Loans Are Getting Tougher to Secure For Some Borrowers

VA loans are hotter than ever.

But for some veterans and active duty service members, they're also more difficult to secure than ever before.

Over the last five years, veterans and their families have flocked to the security and unmatched buying power of these government-backed loans. VA loan volume has soared 135 percent since 2007, jumping to 314,011 loans in 2010 from just 133,313 in 2007.

A tighter credit market and sagging housing industry have fueled renewed interest in this long-cherished program. The VA loan program has helped more than 18 million service members become homeowners since 1944.

Tighter Lending Climate
VA loans feature more flexible credit and underwriting standards than conventional loans. Qualified borrowers can purchase a home with no money down and no out-of-pocket costs.

Military borrowers near Fort Bragg and across the country have flocked to the safety and security of these government-backed loans in the wake of the subprime mortgage meltdown. VA purchase loans in North Carolina increased 7 percent from fiscal year 2010 to fiscal year 2009.

Despite the flexibility, obtaining a VA purchase or refinance loan today can be a bit tougher for borrowers with borderline credit. Lenders across the country have tightened requirements since the subprime debable.

VA lenders didn't engage in risky borrowing. But military borrowers still have to cope with the consequences, namely a more restrictive credit environment.

Veterans and active duty service members without a credit score of at least 620 are going to struggle to secure VA financing. Most VA-approved lenders are leery of prospetive borrowers below that threshold.

Beyond that, the tighter credit environment is also affecting VA's refinance programs.

The VA's Interest Rate Reduction Refinance Loan, better known as a VA Streamline, has long been a favorite because of its simplicity. The VA doesn't require credit checks or appraisals. But VA lenders, who ulitimately issue the loan, are now requiring both.

Good Credit is Key
The bottom line is that military borrowers with shaky credit are in for an increasingly tougher time. Now more than ever, its important to monitor spending and keep a close eye on your credit report.

In this new lending climate, a couple of late payments or risky decisions could stop some deserving borrowers from taking advantage of the benefits earned by their service.