Millennial veterans and military members are helping fuel the resurgence of the historic VA loan program. Last year’s 700,000-plus loans were more than double the agency’s total from five years ago.
Younger buyers in particular have flocked to these government-backed mortgages during a time of tight credit and flatlining wage growth. The VA says millennials accounted for about a third of all VA loans last year.
These low-interest loans offer qualified buyers a wealth of benefits. That’s especially true for millennial borrowers, who often have dented credit or minimal savings. This $0 down payment loan program was created to help level the playing field for those who serve our country, and it’s still doing so today.
“VA loans offer an extraordinary opportunity for veterans because of lower interest rates, lower monthly payments, no or low down payments, and no private mortgage insurance,” said Jeff London, director of the VA home loan program.
Here’s a closer look at three of the big benefits that make VA loans such a good match for millennial home buyers.
1. No down payment requirement
This renowned benefit of VA loans helps veterans purchase without having to spend years saving for a down payment. When determining affordability, qualified buyers in most of the country should know that they can purchase a home for up to $424,100 before having to factor in a down payment. That ceiling is even higher in costlier housing markets.
The average VA loan last year was for about $253,000. Getting a conventional loan for that amount often requires a down payment of at least $12,000. FHA loans require at least 3.5% down. That’s no small sum in either case, particularly for younger veterans and military families.
2. No mortgage insurance
VA buyers also don’t have to pay extra each month for mortgage insurance, a common feature of low-down-payment loans. Conventional buyers typically need to pay for private mortgage insurance unless they can put down 20%. FHA loans come with both upfront and annual mortgage insurance premiums.
For example, FHA buyers shell out an additional $140 per month for mortgage insurance on a typical $200,000 loan. That extra outlay can limit your purchasing power, as well as put a hole in your monthly budget.
Most VA buyers encounter a funding fee that goes straight to the Department of Veterans Affairs. Veterans and military members can finance this cost over the life of their loan. Borrowers who receive compensation for a service-connected disability don’t pay it at all.
3. Flexible credit guidelines
VA loans were created to boost access to homeownership for veteran and military families. They’re naturally more flexible and forgiving when it comes to credit underwriting.
Lenders typically have lower credit score benchmarks for VA loans than for conventional mortgages. The average FICO score on a VA purchase last year was 50 points lower than the average conventional score, according to Ellie Mae.
Compared with conventional borrowers, qualified VA buyers can also bounce back faster after a bankruptcy, foreclosure, or short sale.
Despite their flexibility, VA loans have had the lowest foreclosure rate on the market for most of the past nine years. That’s due in large part to the VA’s commitment to helping veterans keep their homes.
Loan program officials can advocate on behalf of veteran homeowners and encourage lenders and mortgage servicers to offer alternatives to foreclosure.
“VA is even there to assist veterans who encounter difficulty making payments,” London said. “Last year, VA and servicers helped over 97,000 veterans avoid foreclosure. Using the VA program is a win for veterans, lenders, and taxpayers.”
More than seven decades after their introduction, VA loans are still making a big difference for veterans, military members, and their families.
“A home and its equity becomes the bedrock of their economic future,” said Curtis L. Coy, deputy undersecretary for economic opportunity at the Department of Veterans Affairs. “Money that would have typically been used for the down payment is now money in their pocket—money that can be the beginning of their savings or can be used to fix up their home. It is a win-win for the veteran and the community where they spend that money.”