VA Loan Program Soars To Record Year
A home loan program steeped in history continues to make it. The United States Department of Veterans Affairs, known as the VA loan program, backed an all-time record 631,151 loans in fiscal year 2015, eclipsing the previous high-water mark set just two years prior.
More and more veterans are using these flexible, $0 down loans to crack the housing market during a time of tight credit and limping wages. A good year for the industry was a great one for military buyers: VA purchase loans surged 19% year over year, according to recently released figures.
To put that growth into perspective, the VA guaranteed more loans to buy homes last year (322,120) than it did total loans—whether they be purchase loans or refinances—in fiscal year 2010 (314,011).
The outlook for this 71-year-old benefit program is bright, too. The population of younger veterans is expected to increase 36% over the next five years, according to a recent Deutsche Bank analysis.
To be sure, VA loans aren’t the right fit for every veteran. But they’re also no longer on the sidelines. In fact, in many ways, these government-backed loans are arguably the most powerful mortgage product on the market.
Keeping pace
Greater awareness of the benefits—and the surprising safety—of VA loans has propelled market share in recent years. Credit guidelines for VA loans are generally more forgiving compared with conventional loans, and VA buyers don’t have to spend years scraping up a down payment.
That one-two punch helps make home ownership possible for scores of veterans and military families who might otherwise miss out. The average VA buyer has about $7,000 to $8,000 in assets, according to the VA. These loans also carry no mortgage insurance and limit what buyers can pay in closing costs.
VA loan growth comes as some longtime misconceptions about the program—along with legitimate shortcomings—continue to fade. Dogged for years by a reputation for sluggishness and bureaucracy, VA loans now keep pace with their mortgage counterparts, if not lead the way.
In December, the average VA purchase loan closed in 51 days, just one day longer than the average conventional purchase, according to Ellie Mae. For each month of 2015, VA loans had the lowest average 30-year fixed interest rate and the highest closing success rate among the three major loan types (VA loans, FHA loans, and conventional loans).
And in one critical area—foreclosure avoidance—this $0 down loan has become an industry leader. VA loans have had the lowest foreclosure rate of all loan types for 25 of the past 28 quarters, according to the Mortgage Bankers Association.
Helping a new generation
Now in its seventh decade, a loan program that began with the original GI Bill is in many ways more important than ever.
Access to mortgage credit is thawing, but it’s still tough for many veterans and military families to build the credit and asset profile necessary for conventional financing. For those would-be buyers, the program continues to fulfill its original mission of leveling the playing field for those who serve.
A more recent development is the emergence of the VA loan program as a go-to mortgage option for veterans who do have the credit and finances to land a conventional loan. Everyone’s situation is different, but these flexible and forgiving loans can be just as powerful for a well-qualified buyer as they are for those on the edge.
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