The VA loan program is absolutely booming in an era of tighter credit and tougher lending requirements.
The agency guaranteed nearly 540,000 loans in FY 2012, which came to a close at the end of September. That's a 51 percent increase compared to FY 2011, and an astounding 305 percent jump from FY 2007.Here's a look at the last six years worth of VA loan totals to give you a sense of the program's tremendous growth:
That's a significant jump in a relatively short time span. This year, like the last few in particular, VA refinance loans are driving the surge in overall lending. The lowest interest rates in years have enticed thousands of homeowners to explore the VA Streamline and Cash-Out programs, which help qualified borrowers lower their monthly mortgage payments and, in the case of the Cash-Out option, extract cash from their equity.
Refinance loans were definitely the story again in FY12. Lenders issued about 340,000 VA refinance loans this year, almost double the total from last year. Low rates and relatively low loan costs help explain a lot of the "Why?"
Interest rates on a VA loan are competitive if not consistently lower when compared to conventional rates. VA borrowers with a credit score in the mid-600s can get the kind of score a conventional borrower in the mid-700s might be getting.
The VA Streamline program, which is only open to current VA homeowners, exists for the sole purpose of getting veterans into lower-rate mortgages. Veterans with any type of mortgage can use the Cash-Out program to refinance into a VA loan in order to utilize their hard-earned benefits.
Refinancing may result in higher finance charges over the life of the loan.
So why have VA loans done so incredibly well these last five years?
A lot of it has to do with fallout from the housing market and economic collapse. In the aftermath, lenders ratcheted up requirements and generally made it tougher for borrowers to secure financing. Created to help level the playing field for veterans, the VA home loan program features flexible yet prudent requirements that open the doors of homeownership to people who might otherwise struggle to secure financing.
VA loans have more flexible debt-to-income requirements, and most lenders are typically looking for a credit score of at least 640. In comparison, the average credit score on an FHA loan denial was 669 in May of this year, according to the National Association of Realtors. Conventional lenders are looking for even higher credit scores.
Nine in 10 VA loans come with no down payment. That's a tremendous advantage in the current economic climate, and one that's made this nearly 70-year-old loan program increasingly important for those who serve our country.
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