Mortgages: A Big Year for V.A. Loans



The number of loans guaranteed by the Department of Veterans Affairs reached a record high in 2013, perhaps marking the peak of an upward trajectory that began after the housing market collapse.

The department guaranteed nearly 630,000 mortgage loans in fiscal year 2013, setting a new high just as the program enters its 70th year, said Mike Frueh, the director of the V.A.’€’s Loan Guaranty Program. The average loan was about $225,000, an amount that reflects the program’€™s value to €”working-class America,”€ he said.

Calling the program’€™s growth “€œpretty incredible,”€ Chris Birk, the executive editor at Veterans United Home Loans, an online broker of V.A. loans, estimated that total loan volume has risen 372 percent since fiscal 2007.

One reason is historically low interest rates, which have driven a tremendous increase in loans for the purpose of refinancing. About half of last year’€™s V.A. loans were “€œrefis.”€ That business dropped off toward the end of last year as interest rates rose.

Another factor is the tough lending climate of the last six years, which has made a V.A. loan the most viable option for many service members. “€œIt’€™s become so much more difficult for military personnel and veterans to qualify for conventional financing,”€ Mr. Birk said. “€œThis is the only path to homeownership for many.”€

One big advantage for first-time buyers is that the loans do not require a down payment. About 90 percent of all V.A.-guaranteed purchase loans are made without any money down. “€œOur average borrower has about $7,000 in liquid assets at the time they close the loan,”€ Mr. Frueh said. “€œThat’€™s not enough to make a significant down payment.”€

Another benefit is that V.A.-backed loans do not require private mortgage insurance, which add to a borrower’€™s monthly payment. According to Mr. Frueh, for the loans made last year, borrowers will save $35 billion they might otherwise have paid out in mortgage insurance premiums over the life of their loans.

There are restrictions, of course. The loan must be for a primary residence. And the V.A. maintains limits on the amount it will guarantee, based on area median home prices. The 2014 limits, calculated by county, range from $417,500 to $1,094,625.

The V.A. does not set a minimum credit score requirement, but lenders typically add their own, which is currently around 620. The V.A. is more concerned with a borrower’€™s income and expenses.

To qualify, borrowers must show enough monthly income after paying personal debts and housing costs to meet “€œresidual income”€ levels set by the department. The levels vary by region and household size. In the Northeast, for example, on loans exceeding $80,000, a two-person household must show at least $755 in leftover income, while a family of five must show $1,062.

“€œTheir underwriting is a little bit more restrictive, but it’€™s prudent,”€ said William J. McCue, the owner of McCue Mortgage in New Britain, Conn., which has handled the agency’€™s loans since its founding in 1949. “€œThat’€™s why the loans perform so well.”€

Indeed, V.A. loans have shown the lowest foreclosure rate for the last five years, according to data gathered by the Mortgage Bankers Association. “€œPeople naturally assume that these loans are risky,”€ Mr. Birk said, adding, “€œYou really don’€™t see people who can’€™t afford a mortgage getting a loan, because of that residual income requirement.”€

According to data gathered by Veterans United, the three states that saw the greatest jumps in loan activity last year compared to 2012 were Arizona, up 40 percent; Ohio, up 33 percent; and Connecticut, up 30 percent.


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