One of the most cherished benefits for veterans and military families is celebrating a tremendous milestone, not to mention making waves in the housing market.
With a big boost from much-coveted millennial homebuyers, the VA loan program set a new all-time record for mortgages in fiscal year 2016, according to the Department of Veterans Affairs.
The VA backed more than 707,000 loans, a 12% increase from last year and nearly double the agency’s volume from five years ago. Loans to help veterans and military members purchase homes were up almost 10% from last year’s numbers, a sign of the housing market’s continued recovery. The VA loan program’s fiscal year runs Oct. 1 to Sept. 30.
“Over the last five years, we’ve really focused our efforts to improve the efficiency of the program and to increase market awareness,” said John Bell, a Navy veteran and assistant director for loan policy and valuation for the VA loan program. “I think we’re seeing the fruits of that labor, so it’s an exciting time for us and for the veterans we serve.”
Here’s a look at five keys to this historic program’s biggest year ever.
1. Veterans Believe in Homeownership
Earlier this year, the nation’s homeownership rate (62.9%) fell to a 51-year low, according to the Census Bureau. Meanwhile, VA data put the veteran homeownership rate more around 80%.
Market share for this niche mortgage product in particular has soared since the housing crisis. This year’s record volume represents a 395% increase from a decade ago.
The VA has now backed more than 3.3 million home loans since fiscal year 2011. To put that into perspective, the VA didn’t guarantee 3 million loans in the 11 years prior to FY11.
“Homeownership for veterans is more personal than it is for many other people,” said Kenneth O. Preston, the 13th Sergeant Major of the Army. “To actually have ownership and a piece of the country that they defend is something that is very powerful.”
2. Conventional Financing Is Still Tough
VA loans were created to help give veterans a foothold in the housing market. During a time of tight credit and lagging income growth, they continue to be a lifeline for borrowers who might struggle to lock down conventional financing.
VA buyers can purchase with $0 down payment, no mortgage insurance and more lenient credit underwriting. Conventional loans often require a 5% down payment, monthly mortgage insurance and a more robust credit profile.
Through the first nine months of this year, the average VA buyer had a 706 FICO score, compared to an average 753 score for conventional buyers, according to Ellie Mae.
3. Lowest Average Mortgage Rates
VA’s rock-bottom mortgage rates surprise a lot of consumers, albeit it’s a pleasant one for many buyers. For 29 straight months and counting, VA loans have had a lower average rate than both FHA and conventional loans, according to Ellie Mae data.
The streak undoubtedly runs longer, but Ellie Mae didn’t start publishing VA loan data until, well, 29 months ago.
Pursuing conventional financing used to be a no-brainer for veterans with stellar credit and assets. And in some cases it may still be the best route. But VA’s low rates are giving many well-qualified buyers another reason to comparison shop.
5. Millennial Veterans Are Buying
The VA loan program’s benefits recognize the unique financial strains facing veterans and military members. Younger veterans and military families are seizing on the opportunity.
Bell said nearly a third of VA buyers in FY16 were millennials. That squares with recent survey data from the National Association of Realtors, which also found a surge in homebuying among younger veterans and military members.
“Despite having a lower median income ($76,800), more stable job security and no down payment financing options give aspiring homeowners in the military a deserving advantage over their civilian peers,” said Lawrence Yun, NAR chief economist.
6. Strides in Awareness
Surveys have shown that about 1-in-3 homebuying veterans didn’t know they had a home loan benefit. Education efforts by the VA, the Defense Department, mortgage lenders and real estate agents have all helped raise awareness about VA loans and their benefits.
To be sure, VA loans aren’t the answer for every military homebuyer. But for many military families, this historic benefit program continues to represent the most cost-effective path to homeownership.
“More than 70 years after its creation, this home loan benefit is still making a tremendous difference for veterans and their families,” Bell said. “We want to build on our successes to ensure that next year and the years to come provide even more value for veterans and their families.”