Americans are Going Big with VA Loans

flag homeIn 2013, U.S. homebuyers using loans backed by the U.S. Department of Veterans Administration (VA) bought the biggest new single-family homes by square feet out of all common loan types for the first time dating back to 1978, according to U.S. Census Bureau data.

That milestone coincided with tremendous growth of the program. The VA guaranteed a decade-high 629,293 purchase and refinance loans in 2013, and the average loan size reached a decade high of $241,190, up from $148,810 in 2003, according to the VA.

With many borrowers finding conventional mortgages tough to get and the Federal Housing Administration (FHA) program potentially about to become more expensive due to proposed mortgage insurance increases — and the FHA perceived by big banks like JPMorgan Chase & Co. as too risky — VA-backed loans may be a viable and safe alternative for some originators.

“Overall volume [from first-quarter 2007 to 2013] is up 375 percent,” lender Veterans United Home Loans Director of VA Loan Education Chris Birk told Scotsman Guide News. “It’s really driven in no small way by the tightening in lending requirements and historical low interest rates.”

Big homes, jumbo loans

U.S. Census Bureau data show that VA borrowers in 2013 bought new homes with a median size of 2,635 square feet, and an average size of 2,764 square feet. By comparison, borrowers using conventional mortgages, who for years bought the biggest homes, purchased new homes with a median size of 2,497 square feet and a median size of 2,724 feet.

VA administrators declined to speculate why VA borrowers are buying bigger new homes, but the difference in lending standards for VA loans compared to other types may play a role.

The conforming limit for a typical mortgage is $417,000. The conforming VA limit, however, can change by geography. Near San Francisco, the limit is $725,000. Most borrowers may not have to provide a downpayment if the mortgage is below the conforming limit in a given area.

VA borrowers can buy large homes in some areas for well below $417,000. Based on a recent search on Zillow, there were many homes for sale in the Houston area — a high VA loan-volume area — below $400,000 and in excess of 3,000 square feet.

When a loan exceeds the conforming limit, downpayment requirements are much smaller than typical loans. Birk used the Arlington, Virginia, area as an example, where the limit is $693,500. Borrowers purchasing an $800,000 home in Arlington would be responsible for paying only 25 percent of the difference, or approximately $26,000, 3.25 percent of the price. Birk said that about 85 percent of veterans buy with no downpayment.

“VA borrowers can — all things held constant — purchase more home because VA is a no-downpayment, no-[mortgage insurance premium] program,” VA spokesperson Terry Jemison told Scotsman Guide News.

Not for everyone

The federal government created the VA loan program during World War II. Generally, it is open to anyone who has served in the military, during either war or peace, for more than 90 days, plus reservists and certain spouses of deceased veterans.

One drawback is that VA borrowers must pay a funding fee, which helps fund the program. For a first-time, no-downpayment buyer, the fee is 2.15 percent of the total price. Disabled veterans are exempt from the fee.

Because of the fee, a VA loan may end up being more expensive for well-qualified buyers.

“If you’re a service member or veteran with excellent credit and liquidity and assets, you would want to compare rates and costs,” Birk said.

Jemison said that VA guarantees the most loans in states with high military populations. In 2013, the top states were Texas, California, Virginia, Florida and North Carolina, he said.

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