Low Rates, Tight Lending Spur Huge Year for VA Loans

Zillow

Need another sign that conventional lending is still tight?

Riding a surge of refinance loans, VA loan volume year-over-year jumped 51 percent in fiscal year 2012, according to recently released data from the Department of Veterans Affairs. Loan volume has soared 305 percent since FY07.

Military borrowers continue to flock to the program’s flexible underwriting requirements and financial benefits, which include no down payment, higher allowable debt-to-income ratios, no private mortgage insurance and in some cases refinance loans without appraisals.

Right now VA lenders are generally looking for a credit score of at least 620. In contrast, a recent National Association of Realtors survey found that the average FICO score on an FHA denial in May was 669, and borrowers with scores at or above 740 comprised 53 percent of loans in August.

Consistent growth

To get a sense of the recent rise, take a look at total VA loans since FY07:

  • FY12: 539,884
  • FY11: 357,592
  • FY10: 314,011
  • FY09: 325,690
  • FY08: 179,670
  • FY07: 133,313

This year’s total is the highest since 1994. Loan volume increased at least 25 percent in all 50 states, including significant year-over-year gains in Utah (98 percent), Hawaii (89 percent), Virginia (69 percent), Nebraska (67 percent) and California and Massachusetts (65 percent).

The recent growth of the program comes in the wake of the subprime mortgage meltdown and the lending restrictions that followed. Military borrowers have found it increasingly difficult to secure conventional financing, and even the minimum 3.5 percent down payment on an FHA loan can prove too much for military families.

That’s why this nearly 70-year-old no down payment loan program continues to make a tremendous difference for veterans and active military.

Refinance boom

Historically low interest rates also continue to drive the VA boom. The agency guaranteed nearly 340,000 refinance loans in FY12, almost double last year’s total. Purchase loans increased about 8 percent.

The VA’s Streamline refinance program allows qualified borrowers to take advantage of low rates with little hassle. Some lenders can offer this VA-to-VA option without an appraisal to underwater homeowners.

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Chris Birk is a former journalist and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.” He is also content development director for Veterans United Home Loans. Follow him on Google+.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

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