Veterans Not Utilizing Earned VA Home Loan Benefits

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What’s My Payment has never been abashed with its affection for VA loans. No down payment, no mortgage insurance, ultra-competitive interest rates, a myriad of the best mortgage lenders fighting for your business, and no limit to the amount that can be borrowed other than qualifying for the mortgage payment. If you’re eligible for a VA loan, considering one to purchase your new home is a must.

If VA loans are so great, why are so few veterans using them?

When 2021 ended the number of active VA loan participants exceeded 3.5 million. A large number that looks less significant when the same data sheet estimates a veteran population of over 19 million in September 2021.

While it’s unrealistic to think that every veteran is or should be a homeowner, it’s not unreasonable to expect the number of active VA loans to exceed 18% of the veteran population.

Before we consider why this percentage is not larger, let’s be clear that more veterans and active service members are using their home loan benefits than ever. 2021 saw over 1.4 million VA loans originated. However, that includes nearly one million VA refinance loans, including cash-out and IRRRL.

“Only” about ⅓ of VA loans originated in 2021 were purchase transactions. Interest rates have been incredibly low and have risen early in 2022. This suggests the number of new VA loans coming this year will be significantly lower than last. Still, the purchase market continues to be red hot despite rising interest rates. Therefore, the number of VA purchase transactions should remain historically high.

What is the reason more veterans aren’t using their VA home loan benefits?

There is never one clear answer when dealing with reasons behind the behaviors of millions of people. After considering many possibilities, it seems there are two clear reasons.

• Homebuyers no longer need the benefits of VA loans..
• Real estate agents steer buyers and sellers away from VA loans.

There are undoubtedly other reasons, but these seem to be the most relevant given the current housing market.

Homebuyers No Longer Need the Benefits of VA Loans

This sounds crazy, right? Who wouldn’t want no down payment, a great interest rate, no PMI, etc, etc?

Someone who just sold their previous home for a huge profit in a booming market who now has a ton of cash to roll into their new home – that’s who.

Conventional loans with large down payments are desirable to lenders. Therefore, the costs to the homebuyer may be as low or lower than a comparable VA loan, without the closing requirements of a VA loan.

Buyers purchasing their first home or who have other ideas for any profits obtained through selling a previous residence would still likely find a VA loan to be most advantageous. However, for buyers with large down payments - and there are more of them now due to appreciating home values - the weight of the VA funding fee and potential hangups to meet VA standards are driving them to conventional loans.

Real Estate Agents Steering Buyers and Sellers Away From VA Loans

Yikes. That sounds bad. It’s not meant to.

The fact is VA loans can have more nuance than a more traditional mortgage loan when it comes to closing. In a real estate market that is scorching, any chance of delay can be money lost.

We addressed the obstacles of buying a home with a VA loan last summer. The gist of it is:

The housing market is blazing right now in many parts of the country, and it is common for a newly listed home to have multiple offers pour in in a matter of days, some of which are thousands of dollars above the listing price.

While price is always a leading factor sellers consider when choosing a buyer, it is becoming less so as getting offers over asking price becomes commonplace. Sellers are beginning to consider the path of least resistance more and more when considering multiple offers. This can put VA homebuyers at a disadvantage in the eyes of some sellers and real estate agents.

VA appraisal requirements and the perception many real estate agents have regarding the time they take to complete often have them persuading sellers to consider more conventional financing options. If there are all cash offers on the table, oftentimes they’ll come with no appraisal or inspection requirements. Such offers are extremely difficult to compete with.

What does this mean for the future of VA loans?

VA loans aren’t going anywhere. They remain an option that must be considered by anyone who is eligible. The market will shift as it always does. Under “normal” growth rates homebuyers may not wish to roll profits into their new home in the form of a larger down payment. “Normal” markets contain few bidding wars, so the few extra steps needed to obtain a VA loan will mean less to sellers and agents.

All this being said, VA loans are immensely popular. Lenders love them, and service members buying their first homes will not find a better option.