Despite Struggling Economy VA Home Loans Still Underutilized, Gaining Ground Slowly

VA Home Loans, one of many benefits granted to men and women of service, provide a unique opportunity for veterans; the loans give a ‘qualified’ vet a shot at the American Dream; home ownership. However, recent statistics indicate that the use of VA Home Loans are largely underutilized, although signs of very gradual growth exist.

A VA loan is a mortgage loan guaranteed by the U.S. Department of Veterans Affairs (VA) and is designed to offer long-term financing to eligible American veterans or their surviving spouses (provided they do not remarry). The basic intention of the VA direct home loan program is to supply home financing to eligible veterans in areas where private financing is not generally available and in some cases, help veterans purchase properties even if they have no  down payment at all.

The VA loan allows veterans 103.3 percent financing without private mortgage insurance or a 20 per cent second mortgage and up to $6,000 for energy efficient improvements. And since there is no monthly Private Mortgage Insurance, more of the mortgage payment goes directly towards qualifying for the loan amount, allowing for larger loans with the same payment.

You would think that – given the state of the United States economy and how difficult it can make purchasing a home these days – that such a great program would be widely used and taken advantage of. However, this doesn’t appear to be the case, surprisingly. So how does a program that has the potential to help so many, such as the VA Home Loan program, lack participation?

An article by NationalMortgageNews.com blames low participation rates simply on a lack of promotion for the VA home loan program saying that many loan officers don't even ask potential clients if they are veterans - and vice-versa; many veterans don’t know about the program to ask for a VA loan.

In a separate highlight on the issue from Marinecorpstimes.com, Son Nguyen, head of the nonprofit Veterans Association of Real Estate Professionals, says that The Veterans Affairs Department should modernize the program and fund outreach efforts to educate both troops, vets, real estate professionals, and loan counselors about VA Home Loans; he also said that defense officials need to do a better job of educating troops about the benefit. However, this same article poses another significant issue that may be driving down the number, and it has nothing to do with knowledge of it; instead, it has to do with the complications that real estate agents perceive the program causes to the process of closing their deal. Typically, VA Loans take longer to finalize than other loans, according to Mark Connors, VA’s lender liaison for loan policy and valuation guaranty services.

“When I was negotiating for my house in 2012, the seller’s agent came back to me and said ‘VA loans are too complicated, can we do it conventional?’” he said. “I said the deal would be off.”

In fact, according to Nationalmortgagenews.com, of the 16.4 million active-duty service members and military veterans with mortgages, less than 12% have a loan guaranteed by the Department of Veterans Affairs. However, the program may be experiencing an upswing in the near future, as an increase in Federal Housing Administration (FHA) mortgage insurance premiums is making the VA Loans more competitive according to Megan Booth, senior policy representative at the National Association of Realtors.

"There is not a Realtor alive today that thinks FHA is a better deal for veterans,” she said. “That is helping the VA grow and it will continue to help the VA grow."

In fact, Floridarealtors.org reports that 2013 was a record year in terms of VA Home Loans, with 629,300 single-family loans in the fiscal year which ended Sept. 30, 2013. This was followed by an additional 90,820 single-family loans in the fiscal second quarter, totaling $20.1 billion. Sixty-three percent (63%) of those were used to purchase a home as opposed to refinancing an existing one, the article noted.

Realtor.org says that another reason for the recent increase in the utilization of VA Home Loans are the efforts being made by the Department of Veterans Affairs make its loan process more efficient for buyers and housing industry professionals, like real estate professionals and lenders. For example, they report, an automated underwriting system is being evaluated to help make credit risk assessments more seamless as well as addressing steps to speed up the appraisal process. For example, the VA is the only agency that is required by law to maintain a panel of appraisers and assign work on a rotational basis.

Nonetheless, the VA Home Loan program, while on paper can be no less than a godsend for struggling, they have certainly been shown to possess several speed bumps – some real, some imagined – that have prevented vets from utilizing their potential. However, with the rapidly changing climate in the real estate market, along with some much-needed public relations work in regards to how the VA Loan program is perceived, increases are on the horizon for the nation’s most worthy citizens - our veterans.

If you are interested in purchasing a home with a VA loan and are in need of a Certificate of Eligibility (COE),  check your eligibility requirements; many are eligible for a loan and do not know it. There are also several options available for spouses as “eligible beneficiaries”. Please note that loan eligibility is determined by The Department of Veterans Affairs.