In a housing market convulsed by tight credit, flattened prices and weak home sales, there is a silver lining for one segment of the market: U.S. military veterans seeking V.A. home loans.
Most honorably discharged veterans are eligible for Department of Veteran Affairs home loans. What's the appeal? Even borrowers with no down payment or a less-than-ideal credit score can qualify. Veterans can borrow up to $417,000 (or more if the buyer lives in a county with higher average home costs.). Borrowers pay no private mortgage insurance. The V.A. sets limits on closing costs and origination and appraisal fees. All in all, it makes for getting a leg up in a market where lenders have clamped down hard.
"It's a very good product," says Douglas C. Rice, senior loan officer at Fidelity First Home Mortgage Co. in Annapolis, Md. "The VA loan program is probably the easiest to qualify for -- if you're a veteran."
To be eligible, a veteran has to be honorably discharged and prove that he or she served 24 months of continuous active military duty. There are other qualifications as well. For details, visit the Department of Veteran Affairs website. Lenders require a Certificate of Eligibility from the veteran affairs department.
Can borrowers always get the full amount they want? Not necessarily. They have to qualify for the loan based on income and credit scores. The scores, however, are derived from activity over the last 12 months, instead of several years, the norm for civilians. The average credit score for a V.A. borrower last year was about 700; the average for all borrowers was 750, according to the Federal Housing Finance Agency.
The basic loan entitlement is $36,000. Good luck with that in California or New York. For loans greater than $144,000 but less than $417,000, the maximum entitlement is $104,250. For loans greater than $417,000, the maximum entitlement is 25% of the appropriate "loan limit," which can vary by county.
And interest rates? They're slightly better than conventional rates, depending on how much a borrower puts down. V.A. adjustable-rate mortgages are very desirable, says Rice. A 5/1 ARM (fixed rate for five years, then adjusted yearly) currently is "in the low 3 percents," says Rice. Conventional 30-year fixed-rate mortgages are about 4.25%, with 20% down. V.A. fixed-rate loans are the same, but with zero down, says Rice.
Tom Wright, 55, (pictured) a Vietnam era veteran and self-help author, has gotten four V.A. loans over the years. He recently secured a refinance on his Asheville, N.C., home. He borrowed $170,000 at a fixed, 5.3% rate, far better than the 6.5% he was paying before the refi.
"It would have been horrendous if I'd gone to my local bank," Wright says. "There, you hit a brick wall unless you have millions in the bank." His loan process took about three months, time well spent, he says.
Lenders are getting stricter, however, even with V.A. loans, brokers say. They're looking for higher credit scores and sometimes require borrowers to pay for an appraisal.
Still, "the V.A. program is great," says Rice. "It's worth it."