Air Force Tech Sgt. Rhonda Stockstill settled into her new home in February, nine months after the massive tornado that ravaged much of Moore, Oklahoma, leveled her old one. Family members and pets clustered under the stairs as the storm swept through that spring afternoon. A surgical technician, Sgt. Stockstill raced from the shattered remains of her home to provide medical aid at a nearby elementary school.
She and her family sought to rebuild in the wake of the disaster. The plan stalled when their lender wanted a significant down payment to secure a conventional mortgage. Shifting gears, Sgt. Stockstill decided to tap into a mortgage benefit program that's helped millions of service members and veterans for the past seven decades.
The VA Loan Guaranty Program celebrated its 70th anniversary on June 22. Part of the original GI Bill, the home loan benefit was created to help put returning service members on more equal financial footing with their civilian counterparts.
How VA Loans Make a Difference: Rather than make loans or provide cash assistance, the government pledged to insure a portion of each mortgage made by a private lender. That financial promise, known as the VA guaranty, gives lenders the confidence to extend financing with significant benefits, chiefly the ability to purchase without a down payment.
Seventy years later, in an era of restrictive lending and winnowing incomes, this home loan benefit is more important than ever.
Credit score and down payment standards for conventional and even FHA loans often prove difficult to hit for veterans and military members. Military service can put a unique strain on finances and credit. (If you're concerned with where your credit stands, you can use free services to monitor your credit score on sites like Credit.com, where you can also create a plan to help you improve it.)
Military borrowers have found refuge in the VA loan program, which features more flexible requirements. The program guaranteed a record 630,000 loans in fiscal year 2013.
Nationally, VA loan volume has jumped 372 percent since 2007.
VA lenders typically require a minimum 620 credit score, a benchmark that's far below what borrowers need for conventional financing. Successful conventional borrowers had an average 755 credit score in May, according to mortgage software company Ellie Mae. For successful VA borrowers, the average score was 711.
But the signature benefit of the VA loan program is the ability to purchase without a down payment. More than 80 percent of VA buyers put $0 down last year.
To get a sense of just how powerful that is, consider that on a $400,000 loan the typical conventional borrower would need $20,000 in cash for a minimum down payment. FHA lenders would need a minimum $14,000 for that same loan value.
In either case, borrowers who couldn't put down 20 percent would be stuck shelling out extra money each month -- as much as $200 or more -- for mortgage insurance. That's an additional cost VA loans don't have.
VA loan benefits can seem out of step with an economy still reeling from the subprime mortgage fallout. But this long-cherished home loan program has actually led the way in terms of risk mitigation. In fact, these zero-down loans have been the safest mortgages on the market for most of the past six years, according to the Mortgage Bankers Association.
There are a few key reasons why.
The VA and lenders use prudent underwriting requirements that take a more holistic approach. A unique standard for residual income helps ensure that VA borrowers have enough money left over each month for routine expenses after paying their mortgage and other major obligations.
The VA has also invested considerable resources to minimize foreclosure. Loan Guaranty employees work with veterans and their mortgage servicers to encourage loan modifications, forbearance and other preventative measures. The VA's continued efforts helped 74,000 veterans avoid foreclosure last year alone, saving more than $2.8 billion in potential foreclosure claims.
VA borrowers themselves also deserve recognition for the program's remarkable safety. It's a demographic that takes to heart duty and obligation, even in the form of a regular mortgage payment.
The VA home loan program is a commitment that spans generations of American service members. Seventy years after its creation, that promise of a more level playing field is still pivotal for veterans hoping to secure a piece of the American Dream.