With the improved economy and more veterans returning home from wars in Iraq and Afghanistan, VA home lending has surged in recent years.
In 2015, 18% of all buyers of home transactions identified themselves as veterans, according to Grant Moon, founder and president of VA Loan Captain Inc., citing statistics from the National Association of Realtors. An additional 3% of buyers were active-duty military members, he said. Approximately 22 million VA loans have been granted since the VA Home Loan Guaranty program was initiated in 1944. said John Bell, the assistant director of loan production and valuation at the U.S. Department of Veterans Affairs. It was originally adopted as part of the GI Bill of Rights for U.S. soldiers returning from World War II.
The loan program has grown significantly in the years since the Great Recession. In 2008, there were a total of 179,630 VA guaranteed home loans. In fiscal 2012, the number of VA loans had grown to 539,884, and by fiscal 2015 there were 631,137 VA home loans, according to statistics provided by the Veterans Administration.
While veterans and active-duty service members of different ages are using the program, “millennial buyers made up just over 26% of the total portfolio in 2015,” Bell said.
Moon cited two major reasons for the increasing number of VA home loans. First, more lenders are targeting veterans.
“With numerous veterans returning home from active-duty and multiple deployments to war zones, many want a piece of the American dream so there are large numbers of veterans looking to buy a home as they move back into society,” he said.
Moon also said lenders often can make more money on VA loans. VA loans are valuable on the secondary market when the lender goes to sell the loan. Veterans are less likely to default, and lenders have the U.S. government’s guarantee of up to 25% of the loan, he said. Other benefits of VA loans include lower interest rates and closing costs compared with conventional loans and 100% financing. Plus no private mortgage insurance is required by purchasers.
Moon said there is fierce competition among lenders for VA loans. This competition between lenders can drive up the costs for a VA loan, which are passed on to borrowers.
“With increasing revenues being spent on advertising by lenders, veterans need to ask themselves if they are being given the best deal by lenders that spend a lot of money on advertising,” he said. “Veterans need to shop around for the fees being charged on VA loans. Veterans need to look at and compare the APR from a variety of lenders to get the best deal, as fees that are charged by a lender are loaded into the cost of the loan.”
Louise Thaxton, a regional manager at Fairway Independent Mortgage Corporation, Leesville, La., said more than half of the company’s loan production consists of VA loans. Thaxton said one reason VA loans are popular with veterans and active-duty service members is they can get a bigger loan with no money down. The second reason is because of veterans’ desire to reintegrate into society after their military service, according to Thaxton.
Despite the increasing number of VA loans, many veterans remain unaware of the benefits. Thaxton said she has seen some veterans who did not buy their first home or use a VA loan until age 60 or more because they were not aware of the program.
“As a country, we have a responsibility to embrace our veterans and do a better job at supporting them,” she said.
Thaxton runs a boot camp for Realtors through the American Warrior Initiative of Fairway Independent Mortgage Corporation. The course offers a certification known as MMS (Military Mortgage Specialist), and is designed to educate Realtors about the unique and often difficult circumstances that face veterans and active-duty military members such as repeated deployments and combat-related injuries.
“Some sellers are unwilling to sell a home to a buyer that’s using a VA loan,” Thaxton said. “This violates the 1944 GI Bill of Rights and is discriminatory. It’s not illegal yet, but it is immoral. Some sellers are uninformed about the program, for example, thinking they need to pay closing costs for a VA buyer. It’s up to the Realtor to educate them.”
Bell attributes the increasing use of VA loans in part to the fact that the VA has worked to streamline the process for using VA loans for veterans and lenders. “We’ve made considerable enhancements with regards to accessibility, eligibility processes and turnaround times within the last five years,” he said.
Bell said the goal has been to make the process less cumbersome and more efficient.
“From an efficiency standpoint, we’ve improved and are more in line with the industry,” he said. “One example of improved efficiency is the eligibility process. Before it was manual, now it’s automated and many times the decision is instantaneous.”
Bill Banfield, vice president of capital markets for Quicken Loans, said a combination of factors is contributing to the growth of VA loans such as an increase in veterans leaving active-duty service and more veterans being aware of the home loan program. “The VA home loan program provides great options to veterans, including a zero down payment option, yet it has reported the lowest foreclosure rate of any loan type for most of the last eight years,” he said.
Bell said the VA is talking to Realtors more about the program and began giving presentations to groups of Realtors in May.
“The VA is committed to maintaining a quality program,” he said. “VA loans and rates are the most competitive out there. We also have a fee structure that lists allowable and nonallowable charges.”
A brief overview of the VA Guaranteed Loan Program can be found at: http://benefits.va.gov/BENEFITS/factsheets/homeloans/VA_Guaranteed_Home_Loans.pdf.
Freelance writer Carole Jakucs contributed to the writing and research of this article.