Usage of The VA Loan Program Reaches New High

The VA is seeing record numbers of veterans take advantage of their VA loan benefits over the last while, and this is widely attributed to the Pentagon making reductions in force as a result of the current budget crisis. The trend started in 2013, when the VA broke their record for number of loans guaranteed in a given year by guaranteeing over 620,000 loans. While this uptick is not unexpected, it’s seen as an indication that the government program is doing what it was meant to do – provide homes for veterans on better terms than they could get elsewhere. While 2013 was a record-breaking year for the VA, 2014 looks to be on track to dwarf it. Through March of 2014, or the first quarter, the VA guaranteed about 192,000 loans. Especially considering that the first quarter is often slower than the rest of the year, the VA is projected to not only beat the current record, but obliterate it by the end of the year. They could feasibly reach over 800,000 loans.

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The previous record before 2013 was set in 1994, and was 602,244 loans. There are currently 1.9 million active VA loans. Together, they make up about $350 billion. The average loan amount for VA loans closed last year was $225,604. These statistics are an interesting snapshot of the current situation in the VA loan program. Knowing that many of our troops are taking advantage of the VA loan program helps us know that the program is providing the assistance that they need and making it possible for them to advance their lives through home ownership. With the military downsizing due to automatic budget cuts, and service members seeing a little more permanence in their lives with the conflicts in Iraq and Afghanistan mostly concluded, there is a lot more interest in home ownership among younger veterans and active service members. The active-duty force is expected to be reduced to 1.31 million troops by 2015, which is down from a 2010 high of 1.43 million. The reduction amounts to roughly 9%, or 122,000 troops. This reduction, in conjunction with the normal turnover of discharges and new recruits, makes for more veterans leaving active duty than is normal.

The VA has also made strides in recent years to make the VA loan program more accessible to veterans. Up until recently, a Certificate of Eligibility could only be applied for via mail, and could easily take weeks or even several months to receive. By making the COE application available to submit online, the VA has made it that much more accessible to those interested in taking advantage of their VA loan benefits. Probably not coincidentally, the number of individuals attempting to submit an online application for their COE increased by 29% in 2013. However, all agree that one of the biggest factors at play in the increase in VA loan applications is that they do not require a down payment.

One of the most unique things about the VA loan program is that VA loans do not require a down payment. Since saving up for a down payment is a matter of years in the best of economic times, while in the midst of the slowest recovery in American history it stands to reason that veterans are taking advantage of the ability to purchase a home without making a down payment. Indeed, 89% of all VA loans were made with no down payment in 2013. While a testament to the efficacy and value of the VA loan program, this trend does have somewhat more glum implications in terms of the economic statuses of our service members. It also suggests that veterans may be turning to the VA loan program because they have no other option.

This growth of the VA loan program is in spite of distaste for it in the minds of sellers who don’t like the additional government requirements for a VA loan borrower. The government requires an additional appraisal be done by a VA appraiser, which can throw a wrench in the works if the appraiser determines that the sale price of the home is higher than the fair value of it – even if both buyer and seller are satisfied with the terms. The VA loan program also requires the seller to sign an Escape Clause, which allows the borrower to step out of the contract to buy the home if necessary. For these reasons, many sellers shy away from selling to VA loan borrowers.

Expecting PCS Orders? What About Your VA Loan?

One of the trademark attributes of military service is getting new PCS orders. Sometimes PCS orders come at the best time, and sometimes they come at the worst time. Many active service members worry about getting a VA loan where they are currently stationed because they will likely only be there between two to three years. It’s true that military service members and their families move more than twice as much as civilian families do. So should anticipating PCS orders within the next few years stop you from getting a VA loan to purchase a home where you’re currently living? Hopefully the information we provide will help you make the best decision for your family.

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One of the biggest concerns facing service members considering getting a VA loan and to service members who have used their VA loan benefits and received PCS orders is having to scramble and rush to sell their current home in time to use their VA loan benefits in their new assigned post. This concern stems from correct knowledge that a VA borrower is only eligible to get a loan on the home they use as their primary residence, and that VA loans are typically restricted to one home at a time (it’s hard to use two different homes as ‘primary’ residences). However, there are certain special circumstances where a borrower can have two VA loans open at the same time. One of these circumstances is, you guessed it, when an active service member is needing to move to comply with PCS orders. The VA has this exception to the rule because they want service members to have full access to their benefits, but recognize that military life itself sometimes makes it difficult to do so.

One of the most beautiful things about this exception, is that it does not matter why the service member wants to keep the home. If they are moving because of PCS orders, the residency requirement is waived and the borrower can keep the house for whatever reason they see fit. Many service members use this as a way to earn rental income off their old house. More typically, the borrower may wish to wait until market conditions are better to list the house at a higher price, or to immediately list their house at a slightly higher price that might take more time to sell. Still others, especially those close to finishing their time in the military, might wish to keep the house because they’re planning on moving there after discharge. Remember, though, that just because VA rules don’t prevent a borrower from keeping their old home after PCS orders, that doesn’t mean there aren’t qualifications for a borrower to be able to use their VA loan benefits a second time.

In order to be able to use their VA benefits to purchase a new home at their new station, they need to have both sufficient entitlement and the ability to pay for both loans. For many young military families, those two conditions constitute an obstacle that is impossible to overcome. Since the VA has a rule that a borrower’s debt-to-income ratio cannot be higher than 41%, in order to handle two mortgages the borrower’s family would need very impressive income. Additionally, the borrower must have enough entitlement remaining in their VA loan account to cover the cost of the new home. This is not too much of a problem when talking about smaller, low-cost homes, but a borrower will likely not be able to use their VA loan for two sizable homes.

In short, a veteran’s full entitlement is $417,000 in most areas, though some higher-cost areas have higher limits. In other words, if a borrower buys a home for $200,000, then gets PCS orders to somewhere else, that borrower could potentially purchase another home for up to $217,000. If the service member is sent to a higher-cost area, that entitlement could increase. When opening a second VA loan, a borrower is subject to all of the same hoops to jump through as the first time; the borrower’s ability to pay the loan back is evaluated, as well as his or her credit and debt-to-income ratio, and a decision is made to determine whether the borrower can afford a second VA loan.

While it doesn’t work for every situation, it’s worth finding out if you could be taking advantages of the VA loan benefits program – both before and after your next PCS orders.

Expecting PCS Orders? What About Your VA Loan?

One of the trademark attributes of military service is getting new PCS orders. Sometimes PCS orders come at the best time, and sometimes they come at the worst time. Many active service members worry about getting a VA loan where they are currently stationed because they will likely only be there between two to three years. It’s true that military service members and their families move more than twice as much as civilian families do. So should anticipating PCS orders within the next few years stop you from getting a VA loan to purchase a home where you’re currently living? Hopefully the information we provide will help you make the best decision for your family.

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This concern stems from correct knowledge that a VA borrower is only eligible to get a loan on the home they use as their primary residence, and that VA loans are typically restricted to one home at a time (it’s hard to use two different homes as ‘primary’ residences). However, there are certain special circumstances where a borrower can have two VA loans open at the same time. One of these circumstances is, you guessed it, when an active service member is needing to move to comply with PCS orders. The VA has this exception to the rule because they want service members to have full access to their benefits, but recognize that military life itself sometimes makes it difficult to do so.

One of the most beautiful things about this exception, is that it does not matter why the service member wants to keep the home. If they are moving because of PCS orders, the residency requirement is waived and the borrower can keep the house for whatever reason they see fit. Many service members use this as a way to earn rental income off their old house. More typically, the borrower may wish to wait until market conditions are better to list the house at a higher price, or to immediately list their house at a slightly higher price that might take more time to sell. Still others, especially those close to finishing their time in the military, might wish to keep the house because they’re planning on moving there after discharge. Remember, though, that just because VA rules don’t prevent a borrower from keeping their old home after PCS orders, that doesn’t mean there aren’t qualifications for a borrower to be able to use their VA loan benefits a second time.

In order to be able to use their VA benefits to purchase a new home at their new station, they need to have both sufficient entitlement and the ability to pay for both loans. For many young military families, those two conditions constitute an obstacle that is impossible to overcome. Since the VA has a rule that a borrower’s debt-to-income ratio cannot be higher than 41%, in order to handle two mortgages the borrower’s family would need very impressive income. Additionally, the borrower must have enough entitlement remaining in their VA loan account to cover the cost of the new home. This is not too much of a problem when talking about smaller, low-cost homes, but a borrower will likely not be able to use their VA loan for two sizable homes.

In short, a veteran’s full entitlement is $417,000 in most areas, though some higher-cost areas have higher limits. In other words, if a borrower buys a home for $200,000, then gets PCS orders to somewhere else, that borrower could potentially purchase another home for up to $217,000. If the service member is sent to a higher-cost area, that entitlement could increase. When opening a second VA loan, a borrower is subject to all of the same hoops to jump through as the first time; the borrower’s ability to pay the loan back is evaluated, as well as his or her credit and debt-to-income ratio, and a decision is made to determine whether the borrower can afford a second VA loan.

While it doesn’t work for every situation, it’s worth finding out if you could be taking advantages of the VA loan benefits program – both before and after your next PCS orders.

Why VA Loans Are So Successful—Even During the Mortgage Crisis

In the current economy, many homeowners have not been doing well. Homeowners who cannot make their monthly mortgage payments are becoming delinquent on their mortgages and facing possible foreclosures on their homes.

But in the midst of the mortgage crisis, the VA loan program has still been successful. VA loans, which are exclusively available to veterans and men and women serving in the military, provide multiple benefits to borrowers that enable them to finance their homes and stay grounded in the struggling home market.

VA Loans Have Low Delinquency Rates

This type of financing remains a popular option for qualified applicants who want to finance their home in an affordable way. In 2009, the Department of Veteran Affairs guaranteed 325,673 VA loans, proving that the bad economy was no match for the program. These loans have a delinquency rate of only 5 percent.

This is quite low when compared to the delinquency of other types of home loans, which are as high as 30 percent! This shows that the VA must be doing something right with its home mortgage program to be able to maintain such a low delinquency rate.

Why VA Loans Continue to Be Successful

VA loans offer many benefits to both current homeowners and prospective homeowners that allow them to save money upfront and over the life of the loan. This type of financing is unique in that it does not require borrowers to make a down payment on purchases. Many lenders are reluctant to offer this type of incentive because they consider it to be risky in this unstable housing market. The elimination of the down payment saves first-time home buyers thousands of dollars in out-of-pocket costs, which allows them to have more money for other expenses associated with buying a home. Homeowners who already have a mortgage can refinance their loan into a VA loan to receive a lower rate, pull cash from their equity, or consolidate their debt!

Currently, VA mortgage rates are at historic lows, which makes now a great time for individuals to get a VA loan. Compared to other types of home loans, these loans can offer even lower rates. With a low rate, homeowners can reduce their monthly mortgage payment and have more money available for other expenses. This type of financing also does not require mortgage insurance, so borrowers can save even more money over time.

Eligible Applicants Should Take Advantage of This Great Opportunity

This type of financing is also easy to use because it has lenient credit and income requirements; applicants do not have to have perfect credit to be eligible. This is good news for those who may have been turned down for a conventional loan. Applicants will need to have a credit score of at least 620, and they must have gone one year without any delinquent payments.

If you’ve considered financing with a VA loan to receive a low rate and save money, don’t hesitate to call us. Our office makes it simple. We have a team of knowledgeable loan officers who have helped many veterans through the mortgage process.

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*Annual savings calculator based on 2015 monthly average savings extrapolated year-to-date.