James Pickett had to come up with thousands of dollars
for a down payment to buy a house, he’d still be
at age 50, Pickett was able to purchase his first home
in December without any down payment. His family is now
enjoying four bedrooms and a nice yard for the same
monthly payment he previously paid for rent.
so delighted with his new home, he says he likes taking
out the garbage — because he gazes at the house as he
heads back inside. "I look back at the house, and
the dog running around in the yard, and I think, this is
a beautiful house. This is where I’ll be
was able to afford his home in Chicago’s West
Chesterfield neighborhood because he is a veteran.
Between 1985 and 1993 he served in the Marine Corps
Reserve so he qualified for a loan backed by the
Department of Veterans Affairs, a low-interest mortgage
whose popularity continues to grow.
mortgage loan money was flowing from banks before the
2008 financial crash, many vets paid little attention to
the benefit of getting a VA loan, and lenders often
steered vets into private loans that had less government
red tape and could be approved faster. But since the
crash, they have become a reliable source of home-buying
assistance for a segment of the population.
2009 and 2015, the total annual volume of VA mortgage
originations more than doubled, from $75 billion to $155
billion, according to the Urban Institute.
year was a record year for VA loans, with $179.1 billion
provided through 707,107 loans, either for purchases or
to refinance old loans — an increase of 12 percent
over 2015. The average loan nationally was $253,000,
according to Veterans Affairs.
VA loan program began in 1944, when the government made
it possible for veterans returning from World War II to
buy homes. About 22 million veterans have received them.
addition to no down payment, the loans — available to
both veterans and active military personnel — don’t
require borrowers to buy private mortgage insurance to
protect their lender. Typical conventional loans require
a 20 percent down payment, or the homebuyer has to buy
private mortgage insurance until that threshold is met.
also don’t need to have immaculate credit to qualify
for VA loans. The average FICO credit score for a
borrower receiving a VA loan recently has been 710,
compared with 760 for a conventional loan, said Karan
Kaul, an analyst with the Housing Finance Policy Center
of the Urban Institute. A score of 760 is considered
pristine, but Kaul said banks often are even pickier
than that, reserving private bank loans for wealthy
people "with almost no likelihood of
rates on VA loans are also more favorable than other
mortgage products. According to housing data provider
Ellie Mae, the average interest rate on a 30-year,
fixed-rate conventional loan was 4.42 percent in
January. For VA loans, it was 4.01 percent. For loans
guaranteed by the Federal Housing Administration, it was
with another mortgage product supported by the federal
government, FHA-backed loans, the default rate — or
percentage of people failing to pay their mortgages —
is much lower for VA loans. In 2012, for instance, 2.3
percent of FHA loans defaulted, compared with 1.3
percent of VA loans.
"Vets tend to be financially conscious," said
Randy Hopper, senior vice president of mortgage lending
for Navy Federal Credit Union. "They have maturity
in life. They are taught to be disciplined from day
there are also lending practices that are unique to VA
loans, and perhaps those practices could serve as a
lesson in how to improve the outcome for borrowers in
all types of loans, said Chris Birk, director of
education for Veterans United Home Loans, a large VA
mortgage lenders evaluate the borrower’s debts,
expenses and income and make sure there is a specific
cushion of leftover money from each paycheck to cover
surprises — whether it’s an illness, a home repair
or a lost job. That cushion is called "residual
income" and in the Midwest, $1,003 would be
required for a family of four.
lenders don’t specifically calculate such a cushion or
require that borrowers have it.
rules also require VA lenders to work with borrowers if
they have trouble making payments, to avoid the home
going into foreclosure. There are practices in place,
such as relieving payments temporarily.
of the unique requirements in evaluating borrowers, some
lenders have stayed away from VA loans because they have
wanted to avoid a drawn-out process. Yet changes in
government practices and technology changed some of
those concerns a few years ago, Birk said.