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VA Loans: Only A Small Portion of Veterans Are Using Their Benefit
Added February 10, 2009 | Updated July 24, 2009
Much of the news in early 2009 is about mortgages. With zero money down and no private mortgage insurance, many argue a VA loan is hard to beat. That said, the VA Home Loan Guaranty Program is considered by many to be one of the most underutilized mortgage programs out there.
Of the 23.8 million U.S. veterans, less than 10% have taken advantage of their VA home loan benefit. Most veterans are eligible for VA loans, but there are only 2.1 million active VA home loan participants. According to 2008 VA statistics, 20% of veterans don’t even know the VA Home Loan Program exists.
The 2004 study conducted by the VA on the VA Home Loan Program reveals that a veteran household is 5 percent more likely to own a home than a comparable general household. Due to the availability of the Program, it is no wonder. A VA loan is an entitlement earned by a veteran for serving our country. The VA loan benefits are so attractive that anyone with military affiliation should consider the veterans’ mortgage option.
The same study showed that the VA guarantees an average of 11,109 loans every month for veterans realizing the American dream of home ownership. VA currently guarantees 2.2 million active home loans to veterans. Those loans total $243 billion. Over half of these VA home loan guarantees went to one-time users. Approximately 90% of VA borrowers used the “zero down” feature that makes the VA loan guaranty so effective. Eighty-two percent of one-time VA borrowers could not qualify for a conventional loan. And, 76% of borrowers who had used VA loans more than once would not have been able to otherwise qualify for conventional loans, based on the following standards issued by the secondary market — 5% down and a debt-to-income ratio of 36 percent or less. Even FHA loans appear to be “pie in the sky” for 61% of one-time VA loan borrowers, based on 3% down requirements and a maximum debt-to-income ratio of 41
The study also cited that the three most common factors that prevent most potential conventional or FHA applicants from qualifying are: liquidity constraints (e.g., cash on hand for down payment), lending/borrowing constraints (e.g., strict credit qualifying criteria), and the housing market itself (e.g., affordability). Of these, coming up with enough cash for a down payment is the most frequently mentioned hurdle to homeownership. A borrower’s inability to save enough money for a down payment can often discourage him or her from even looking for a house to purchase.
These three hurdles for conventional and FHA borrowers are the very benefits that help drive the VA Loan Guaranty Program. In fact, The VA recognized the unique veterans’ needs early on when the program began in 1944. As a result, qualifying standards for VA loans are different than those of other loans.
Qualifying standards may be different, but many of the VA loan terms are identical to those of conventional loans. Of course, VA loans come with extra benefits that conventional loans don’t have like up to 100% VA refinancing, no private mortgage insurance, and no down payment to name a few.
Of the 90% of VA borrowers who used the “no down payment" VA loan feature, more than half cited this as their primary reason for choosing a VA loan.
More than 90% of the nation’s veterans are not using their home loan entitlements. Many analysts agree it’s a matter of awareness and simply getting the information to those who might be eligible for an entitlement.
Sixty percent of the nation’s veterans live in urban areas. States with the largest veteran population are CA, FL, TX, PA, NY and OH in that order. These six states account for about 36% of all veterans.
According to the report, more than 75% of the VA loan borrowers surveyed said that the VA Loan Guaranty Program provides significant benefits that enabled them to purchase a home when other loan programs couldn’t. They also say that they are better off with their VA loans compared to where they might be financially without a VA loan.
When veterans who had not used their VA loan entitlements were asked why they did not participate in the VA Home Loan Program, this is what they said:
• “What program?” Almost 20% simply hadn’t heard about it.
• 11% assumed they were not eligible for a VA home loan entitlement
• 4% didn’t know how to apply for a VA loan and therefore didn’t pursue it
As stated previously the vast majority of the nearly 24 million veterans are eligible for VA loans. If there were more VA loan awareness reaching the veteran demographic, might there be more VA-eligible borrowers using their entitlements? In 2007, the median age of all living veterans was 60 years old; 61 for men and 47 for women. Median ages by period of service are: Gulf War, 37 years old; Vietnam War, 60; Korean War, 76; and WWII, 84.
Most veterans living today served during times of war. The Vietnam Era veteran, with about 7.9 million, is the largest segment of the veteran population. Forty-eight percent of all U.S. veterans are considered Active Duty. Fifty-two percent are Reserve or National Guard. Eighty-eight percent are men, and 12% are women. Sixty-five percent are in the Army, 12% Air Force, 12% Navy, and 12% Marines. Thirty-four percent have been deployed multiple times. Fifty-two percent belong to the age group 20 – 29 years old. Finally, Sixty-nine percent of those who filed disability claims received service-connected disability compensation awards.
More than three-fourths of the VA borrowers surveyed said that the VA Home Loan program helped them catch up with their civilian counterparts and readjust to civilian life after active duty. In 2008, the federal government put another $6 billion of funding into the VA Loan Guaranty Program. Many predict that the percentage of VA loan takers may go up.
