Military borrowers continue to flock to the safety, security and unmatched buying power of VA loans in the wake of the subprime mortgage meltdown and ensuing credit crunch.
VA loan guarantees have soared 168 percent since 2007, according to data from the Department of Veterans Affairs. The agency backed more than 357,000 loans in Fiscal Year 2011, up from just 133,313 in FY07, an increase of nearly 14 percent. That tremendous growth is a testament to the increasing power and appeal of this no-down payment loan program, which has helped more than 18.7 million service members purchase or refinance a home since 1944.
What's Driving the Growth?
A key factor in the continued growth of the VA loan program is its flexible credit and underwriting standards, which open the doors of homeownership to scores of military members who might otherwise struggle to secure financing. Lenders have tightened their requirements in the last few years in response to the economic turmoil. But veterans and their families don't need perfect credit to qualify for the VA loan program.
Liquidity is another important factor. Borrowers typically need at least a 5 percent down payment for conventional financing, and those who can't put up at least 20 percent have to pay monthly private mortgage insurance. Loans backed by the Federal Housing Administration come with a 3.5 percent minimum down payment.
But VA loans are one of only two loan programs left that provide no-down payment financing to qualified borrowers. That's an incredible benefit in the current market, and it allows military borrowers to pay little, if any, money up front to purchase a home.
Will it Continue?
The reality is VA loans are likely to become even more popular in the coming years. New regulations and changes in the mortgage industry will put a greater emphasis on sizable down payments. Those who can't put down a good chunk of change may find it difficult to secure favorable interest rates.
In addition, interest rates will probably remain low for the foreseeable future, which will continue to drive overall VA loan volume. At the same time, thousands of service members are set to return from Iraq and Afghanistan in the coming months. Many will be looking to take advantage of the home loan benefits earned by their service.
Chris Birk is director of communications for the VA Mortgage Center, which specializes in VA loans for veterans and active duty service members.
This post originally appeared at VA Loans Insider.
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