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Posted 12/17/2015

Military Borrowers Voluntarily Increase VA Mortgage Down Payments

VA Loans: Even though 100% financing is available, VA home buyers opt to make downpayments

VA Mortgage Rates Are "Best Available"

Current mortgage rates are low, but of all the available mortgage rates, it's VA mortgage rates which are the cheapest.

According to mortgage-software provider Ellie Mae, for the last 12 months, VA mortgage rates have beat interest rates for FHA loans and conventional loans handily.

The average interest rate on a closed VA loan is close to 37.5 basis points (0.375%) lower than rates for comparable conventional loans backed by Fannie Mae or Freddie Mac; and 12.5 basis points (0.125%) lower than today's FHA rates.

And, because VA home loans never require mortgage insurance, they can be an excellent choice for home buyers wanting to make a low downpayment on a home, or no downpayment at all; as well as for homeowners wanting to refinance with little or no home equity.

VA loans remain among the best "deals" in today's mortgage market.

Click to see today's rates (May 26th, 2016)

What Is The VA Loan Guaranty Program

VA mortgage rates are available as part of a mortgage program known as the VA Loan Guaranty Program.

The VA Loan Guaranty program is backed by the Department of Veterans Affairs. It was introduced in 1944 and, for more than 70 years, the program has helped veterans serving the nation and returning from war to buy homes and to build roots within a community.

Via the VA Loan Guaranty program, military borrowers are able to buy homes, build homes, and refinance homes at discounted mortgage rates with relaxed credit guidelines.

The program also offers a construction loan-like option for buyers of homes "in need of work". This may include homes in need of major repairs such as structural changes or replacements, or minor updates which may include energy-efficiency improvements.

The VA loan program is managed by the Department of Veterans Affairs, which verifies that all loans meet the agency's eligibility standards.

Eligibility standards are more relaxed than comparable conventional loans backed by either Fannie Mae and Freddie Mac; and exceptions can be made in extenuating circumstances.

All eligible loans earn the "VA Guaranty", which is the VA's promise to reimburse lenders for up to twenty-five percent of the loan amount in the event that the borrower stops making payments and causes a foreclosure.

Because of this guarantee, VA mortgage rates are often the lowest of the interest rates available via common loan programs, including FHA loans and conventional ones.

The VA Guaranty reduces a bank's risk to nearly nil in the same way that a 25% downpayment would do.

VA mortgages are available via most banks and brokers. There is no "special" process to apply.

Click to see today's rates (May 26th, 2016)

Why Home Buyers Love VA Loans

VA mortgage interest rates are typically the lowest of all available mortgage types, but that's not the only reason why home buyers and refinancing households love the VA loan program.

VA loans come standard with several features which are not available via Fannie Mae and Freddie Mac, or with an FHA loan.

For example, VA loans never require mortgage insurance.

No matter how big or how small your downpayment, the Department of Veterans Affairs does not require mortgage insurance on any of its loans.

By contrast, conventional loans require private mortgage insurance on all purchase loans with less than 20% equity; and on all refinance loans with a loan-to-value (LTV) above 80 percent, save for loans via the HARP refinance program.

Mortgage insurance is mandatory on all FHA loans, regardless of downpayment.

Another feature unique to VA loans is that program closing costs are waived for certain borrower types. Borrowers currently receiving disability compensation; or who are an unmarried surviving spouse of a veteran who died in service can be exempted from the VA's typical funding fee.

And, perhaps the program's most attractive feature, all VA loans are "assumable".

An assumable loan is one which can be passed to your home's next buyer with its interest rate intact. If your current mortgage rate is 3.00 percent, you can sell your home and "pass" your 3.00 percent rate to the buyer.

Assumability is especially valuable in a rising mortgage rate environment.

Assuming that mortgage rates return to their historical average near 8.25% within the next 10 years, selling your home with an assumable mortgage at 3% reduces your buyer's mortgage payment $330 for every $100,000 borrowed -- a savings of 44%.

An assumable mortgage can help your home seller faster than any neighboring home without one.

Click to see today's rates (May 26th, 2016)

More VA Buyers Are Making Downpayments

Another key VA loan feature is that VA loans allow for 100% financing. No downpayment is required with a VA loan.

However, just because a "no money down" option is available via the VA, that doesn't mean you have to use it.

It's your option to make a downpayment with the VA loan program, if you want. Your downpayment may be as big or as small as you'd like.

In fact, since 2009, fewer VA borrowers have been using the 100% LTV option.

  • 2009: 90% of VA loans used no downpayment
  • 2010: 89% of VA loans used no downpayment
  • 2011: 88% of VA loans used no downpayment
  • 2012: 86% of VA loans used no downpayment
  • 2013: 84% of VA loans used no downpayment

During this same period of time, VA mortgage rates have been dropping. Rates were in the 6 percent range at the start of the decade.

Today, interest rates for a VA loan are in the low-3s. Low rates have sparked a VA home loan refinance boom.

As compared to 2010, refinances via the VA Streamline Refinance program increased more than three-fold, and in 2013, refinance activity accounted for more than 61% of all VA loans closed, which is eight ticks above the average activity for all loan types combined.

VA Streamline Refinance activity remains strong today.

The program, which is officially known as the Interest Rate Reduction Refinance Loan (IRRRL), gives VA homeowners access to appraisal-less, verification-free refinance loans.

VA Streamline Refinance program guidelines do not require W-2 statements or federal tax returns to be submitted; nor do they require credit reports or proof of active employment.

So long as you've been paying your loan on-time, and your new loan will reduce your monthly payment, there's very little standing between your application and its approval.

VA Streamline Refinance loans typically close in 25 days or fewer.

What Are Today's VA Mortgage Rates?

The VA loan program remains in high demand. Low mortgage rates and loose approval standards make the program attractive to both buyers and refinancing households.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Click to see today's rates (May 26th, 2016)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

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2016 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)