Why aren’t 76% of veterans using their VA loan benefits?

Erik J. Martin
The Mortgage Reports contributor

Veterans are missing out on home buying benefits

VA home loans are arguably the best mortgage available.

With zero down payment required and ultra-low ongoing costs, the VA mortgage program is more affordable than almost any other. And it’s only available to those who have served in the U.S. military.

And yet — only 24% of current military homeowners are tapping those benefits. Which means many are leaving money on the table.

If you’re planning to buy or refinance, here’s why the VA loan should likely be your first stop for financing.

Verify your VA loan eligibility. Start here (Dec 5th, 2021)

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Veteran homeowners aren’t using their VA loan benefits

Consider that there are about 19 million veterans in the United States. And 78% of veteran households are homeowners.

That makes for about 14.8 million veteran households in the country. (And we’re not even counting active-duty service members.)

Yet, only 3.55 million eligible borrowers currently have VA loans.

Only 24% of qualified homeowners are currently using their VA loan benefits — and 76% aren’t.

That means only around 24% of qualified homeowners are currently using their VA loan benefits — and 76% aren’t.

That’s pretty astounding, given the unique benefits of a VA loan that are only available to veterans and service members.

Let’s dig a little further into what those benefits are, and why veterans might not be taking full advantage of them.

VA loans are the best on the market

VA loan benefits add a lot of value for those who qualify for the program.

“A VA loan might just be the perfect mortgage available because it offers applicants the ability to qualify for a zero down payment option, a very attractive interest rate, and the benefit of being a government-back loan. That means there’s less risk to the lender,” explains Jason Gelios, a real estate agent in Southeast Michigan.

But the perks don’t stop there.

A VA loan requires no private mortgage insurance, even though you don’t have to make a down payment. That means your monthly payment will be a lot less than if you had chosen a different loan that required monthly mortgage insurance fees.

“VA loans are [also] very forgiving when it comes to credit requirements. Additionally, there are closing cost limits, no prepayment penalties, and foreclosure avoidance built into this loan,” says Wayne Brown, senior partner of Dugan Brown, a federal retirement planning firm, and a retired United States Air Force Captain.

Also, contrary to popular belief, once your loan is paid off, your full eligibility returns and you can get a subsequent VA loan.

Finally, “The VA loan limit has been removed, so a veteran could literally purchase a million-dollar home with no down payment as long as they qualify for the payments,” says Ron Siegel with the Siegel Lending Team at Geneva Financial.

Why aren’t more borrowers using their VA loan benefits?

All of these perks at up to a simple conclusion: The VA loan offers the best financing bargain in the industry. Folks who don’t qualify would love to be eligible for this mortgage loan.

So why isn’t it more popular among veterans, service members, and other qualified borrowers?

“There are two main reasons why more people aren’t using their VA loan benefits,” notes Brown.

“The first is that many veterans are simply unaware of the benefits they have or the extent to which the benefit reaches,” he says.

“Secondly, there are additional processes and procedures that must be done to use a VA loan. For example, a VA home inspection is much more rigorous than one performed in the non-VA mortgage market. Appraisals with VA loans generally take longer, as well.”

“Many veterans are simply unaware of the [home loan] benefits they have or the extent to which the benefit reaches” –Wayne Brown, Senior Partner at Dugan Brown, Retired U.S. Air Force Captain

“That means even people who are aware of their benefits may not qualify for a VA loan if the home they’d like to purchase is currently under construction or if time is of the essence,” explains Brown.

What’s more, according to Chuck Vander Stelt, a real estate broker with Listing Leaders, VA loans are often not popular or competitive in the current real estate market where bidding wars and multiple offers may put these loans at a disadvantage.

“Unfortunately, many real estate agents and home sellers have an incorrect understanding of the additional requirements when a home is bought with a VA loan. This causes home sellers to be reluctant to accept a VA loan,” says Vander Stelt.

>Related: How to get a seller to accept your VA loan offer

Simply not being aware that the VA loan exists is another major reason, per Gelios.

“I have spoken to many veterans who were surprised when I asked them if they were preapproved for the VA loan. I don’t think the benefits of this type of loan are communicated enough to veterans who qualify,” he says.

Buying a home with a VA loan

A VA loan offers many advantages over other types of mortgage loans, including no down payment required, no private mortgage insurance needed, low interest rates, lower credit requirements, and the assurance of being a government-backed loan.

That makes this the perfect financing vehicle for a new or existing home purchase.

“The process of buying a home with a VA loan is similar to that of an FHA loan. It requires a standard preapproval and review of credit and income, a qualified appraiser who is VA-certified to ensure the home meets the VA Department’s guidelines, and an extra amount of time for loan review,” adds Gelios.

Brown says the steps involved are relatively straightforward.

  1. First, you have to make sure you find a VA-approved lender
  2. Second, you need to get prequalified for your loan by letting your lender know what your income and assets include
  3. Then, you’ll know exactly how much you been approved for, and it’s at this point you would select your home
  4. Next, you would draw up the sales contract
  5. Then, a VA-approved appraiser needs to make sure the loan doesn’t exceed the VA’s estimate of what the home is worth
  6. Lastly, the loan must be finalized after the lender approves everything, taking your credit score and income into account
Get started on you VA loan approval here (Dec 5th, 2021)

Refinancing with a VA loan

If you currently have a non-VA loan, such as a conventional mortgage, you can refinance to a VA loan if you qualify.

Just be aware that the only non-VA to VA refinance option is a VA cash-out refinance, even if you are not looking to tap into your equity and pull cash out of your home. (Note that you are not required to actually take cash out.)

“The process involved mimics a regular refinance in that the lender will review your credit, income, debt-to-income ratio, and other factors,” Gelios points out.

“A VA-certified appraiser will come out and appraise your home to ensure that it meets with VA guidelines and that the value checks out.”

One caveat: As with a VA purchase loan, you’ll have to pay a VA funding fee, which may equate to 2% to 3% of the loan amount on a refinance.

If you already have a VA mortgage loan but want to lower your interest rate, you can also pursue a VA Interest Rate Reduction Refinance Loan (IRRRL).

“With an IRRRL loan, all costs of the loan must be recouped within 36 months to remain eligible. There is very little documentation required for this loan, since the veteran already has been making the payments and the new loan, by definition, will have a lower than the current payment,” Siegel says.

Verify your VA refinance eligibility. Start here (Dec 5th, 2021)

When doesn’t a VA loan make sense?

Of course, just because you can qualify for a VA loan doesn’t mean it’s always the best option.

For example, if you’re looking to purchase an investment property or second home, the VA loan is not eligible.

“The VA loan is strictly designed to assist veterans and other qualified applicants with the dream of primary homeownership,” says Gelios.

Another instance where a VA loan may not be your best choice is when you want to build a new construction home from the ground up.

“Using a VA home loan to buy a parcel of land comes with strict requirements. You must begin building your primary residence immediately on the piece of property being purchased. If your goal is to use the land for farming, hunting, logging, or other activities, a VA loan would not be a viable option,” Brown cautions.

Siegel also recommends thinking twice about purchasing with a VA loan if you don’t expect to remain stationed at the desired location for long.

The bottom line

Even if you’re considering another type of loan, it’s wise to understand how the VA loan works and the advantages it can offer over other programs.

“Any qualified borrower looking to purchase a home should take advantage of the VA loan because it can offer an interest rate less than a conventional loan, no requirement for a down payment, no private mortgage insurance, and the elimination of possible junk fees that other loans tend to have,” says Gelios.

If in doubt, take the time to consult with an experienced loan officer or lender who offers VA financing. They can help you evaluate all your options and choose the best loan type for your situation.

Verify your new rate (Dec 5th, 2021)