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VA loans Rise in 2012 Fiscal Year

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Veteran’s loans, which are government insured mortgages, rose by 50 percent in the 2012 fiscal year that ended on Sept 30. Tighter credit standards on conventional home loans resulted in more military members opting to borrow veteran’s loans.

Nearly 540,000 veteran’s mortgages were lent in the 2012 fiscal year. This is a record high since 1994. The volume of borrowed loans has risen 300 percent compared to five years ago. A massive 338,000 of these veteran’s loans were for refinancing in order to take advantage of current low interest rates.

According to Nathan Long, chief executive of Veterans United Home Loans, existing borrowers can get an interest-rate reduction quite easily since the Department of Veteran Affairs does not require them to prove qualification again.

“It’s a great benefit not to have to go through all the hoops that you would otherwise have to,” said Long, in an interview with the New York Times.

Purchases for veteran’s mortgages rose 10 percent compared to 2011. Part of this was caused by the fact that veteran’s loans do not require a down payment—a rare quality in a mortgage since the housing crisis.

“Regardless of where home prices are, 100 percent financing can be a great option for people. We’ve seen 9 in 10 of our borrowers use the full 100 percent,” said Long.

An added benefit is the fact that a payment for mortgage insurance is not required in veteran’s mortgages. Despite this advantage, these loans do have a limit. Depending on the home’s location, $417,000 to $1.094 million is the maximum allowable limit that can be borrowed towards the purchase of a house. For example, in the expensive New York metropolitan area, the borrowing limit is $777,500.

Like all federally insured mortgages, veteran’s loans are lent by private lenders who are incentivized by their lessened risk to offer better options to qualified applicants. This results in mortgages that are comparable to conventional fixed-rate mortgages. Qualified veteran applicants generally must have a credit score of 620. Applicants must also meet the residual income level to qualify.

These requirements have led to the Department of Veterans Affairs proudly maintaining a lower foreclosure rate on its mortgages than compared to other types of home loans, according to Long.

One Army reserve captain who served in Iraq operations, Grant Moon, used a veteran’s loan to purchase his first home in 2008. His mortgage required no down payment and by renting out rooms he was able to cover his monthly payment, reported the New York Times

“I moved in and I was only paying about $300 a month to have my own home,” said Moon.

Even though VA loans are beneficial to military members that have minimal savings, they are not always the best option for prospective homeowners. Veteran’s loans charge a funding fee which can make them unaffordable or unrealistic if applicants plan on moving—as many military members do.

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