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VA purchase loans are increasing in popularity. That’s because they offer significant advantages over every other type of mortgage:
- VA mortgages require no down payment
- There is no mortgage insurance with VA home loans
- VA loans have no maximum loan amount
Get expert advice about VA purchase loans, and see if they are your best option for buying a home today.Verify your new rate (Jan 26th, 2020)
VA purchase loans are on the rise
VA purchase loans remain popular. That’s what the latest research shows. And it makes sense. They make it easy for veterans, active duty service members, National Guard members, reservists, and surviving spouses to purchase a home.
Per the Department of Veterans Affairs:
- Activity for VA purchase loans in 2018 increased 59 percent compared to 2013
- The VA backed over 610,500 purchase and refinance loans in the fiscal year 2018. These loans are worth $161.3 billion
- The average VA loan amount is $264,197
- First-time buyers comprised around 41 percent (155,620) of all VA home loan borrowers in 2017
- VA loans now account for around 10 percent of the mortgage market. In years past, they made up about 2 percent of the mortgage market
Why VA purchase loans are in demand
Experts say there are several reasons why VA purchase loans are popular today. One is pent-up demand for homes.
“We’ve been in an active theater of engagement almost continually since 1991. So we have more veterans,” says Keith Baker, Mortgage Banking Program coordinator and faculty at North Lake College. “And as they successfully re-enter civilian society, they often become household creators.”
The Great Recession tamped down home buying demand for eight years. “But now these veterans are buying homes at the same rate as others in the housing market,” he adds.
That makes sense, says real estate attorney Elizabeth A. Whitman.
“As of 2017, Gulf War veterans became the largest single group of veterans in the U.S. Most of them are millennials in their twenties and thirties,” she notes. “This happens also to be the largest age group of first-time home buyers. VA purchase loans offer some of the most attractive terms. So it’s no surprise that those who are eligible are flocking to them as they purchase their first homes.”
Chris Birk, director of education for Veterans United Home Loans, agrees.
“Part of the growth of VA purchase loans is a byproduct of financial necessity. Lenders tightened their requirements in the wake of the housing crisis. That made conventional loans tougher to get,” Birk says. “But VA purchase loans make it easier for qualified applicants.”
Military membership has its benefits
Consider the plusses of VA purchase loans:
- Zero down payment is required. Plus, no private mortgage insurance (PMI) is required. That saves a lot of money. “More veterans have used this no-money-down loan in the last five years than in the prior dozen years combined,” says Birk
- VA loans have had the lowest average interest rate on the market for the past 53 straight months, per Ellie Mae.
- The lending rules are more flexible. Thus, it’s easier for eligible borrowers to qualify
- VA purchase loans are backed by a government guarantee
- There’s no prepayment penalty or early-exit fee if you decide to sell earlier than planned
- Most VA loans are “assumable.” In other words, you can transfer your VA loan to a future buyer
- VA loans have had the lowest foreclosure rate among any loan product for 48 straight quarters, based on Mortgage Bankers Association data. “VA loans have actually had the lowest foreclosure rate of any loan type for more than 10 years. That’s one of the most under-reported stories of the housing recovery,” says Birk
Increased awareness of these benefits is another reason why VA loan volume has soared since the housing crisis.
“Veterans and military members are seeing how powerful this loan is in the marketplace. Just knowing about their VA loan benefit is a huge win,” Birk adds. “That’s because it allows them to make a more educated decision when it comes to home financing.”
Other good news
What’s more, loan limits for VA loans have recently been repealed, thanks to the Blue Water Navy Vietnam Veterans Act.
VA borrowers used to have to make a 25% down payment on any loan amount going over conventional limits. But as of January 1, 2020, that’s no longer the case.
Now, VA-eligible borrowers can finance a home at any price with nothing down — provided they qualify for the loan in the first place. (You still have to have good credit, strong income, and low debts to qualify for a jumbo loan, regardless of whether you’re VA-eligible or not.)
“Veterans and military members can face unique credit and financial challenges. That’s based on the nature of their service. It can also be tough to build the savings needed for a typical conventional down payment,” says Birk. “Thankfully, they can turn to the VA loan.”
Before you apply for a VA purchase loan
Prior to shopping for a VA purchase loan, the pros suggest these tips:
Check your credit score. Improve it if needed. “There’s no set credit score benchmark. But VA lenders are typically looking for at least a 620 FICO score,” says Birk.
Prepare for some fees. You don’t have fork over a down payment. But there is a funding fee, which you can wrap into your loan if you choose. You or the home seller will likely pay for a VA appraisal, home inspection, title insurance and escrow services.
Get preapproved for a VA purchase loan. “This gives buyers a clear sense of their purchasing power. And it shows sellers and listing agents that you’re a serious candidate who can make it to closing,” suggests Birk.
Choose a lender carefully. “Make sure the institution making the loan is really VA friendly. That means they have trained personnel who know how to guide you through the application process,” Baker says.Verify your new rate (Jan 26th, 2020)