VA Loans rose to 50 percent in fiscal year

According to a recent report, Department of Veterans Affairs-backed mortgages rose by 50 percent in the fiscal year ended Sept. 30. Experts say this surge is, among other reasons, due to the conventional financing’s tighter credit standards, which makes the VA programs more attractive to former and current military members.

In fiscal year 2012, VA has guaranteed almost 540,000 loans, which is the highest since 1994. Compared with the records five years ago, according to Mike Frueh, the director of loans guarantee service, the amount of loans taken out this year rose to more than 300 percent.

Apart from the tightening credit standards of traditional financing, another reason behind this surge in VA-backed loans is the low interest rates. According to the report, about 330,000 of these loans were for the purpose of refinancing. Current and former members of the military who already have a VA-backed mortgage can still even apply for refinancing with low interest rates, which means more savings compared to taking out loans through traditional lending institutions such as banks.

In fiscal year 2011, VA-backed loans for purchases rose to almost 10 percent.

Another reason behind this huge volume of VA-backed refinance loans is because those who were previously approved on these loans don’t have to “re-prove” themselves that they are eligible for the loan. This means there may be no credit check needed for refinancing.

VA-backed loans also offer great benefits since borrowers don’t have to pay for mortgage insurance. The department, although they place limits on loan amounts, also still offer decent money ranging from $417,000 to $1.094 million. However, the loan amount that a VA member is allowed to take out depends on the location of the property. For instance, for properties in New York metropolitan area, you can take out up to $777,500.

VA Does Not Refinance Its Loan Programs

Although the department does not refinance these loans, the fact that they back or guarantee a portion of each of these loans makes them attractive to lenders. The best thing is that the interest rates charged for these loans is low, comparable to those on low-interest loans offered by traditional lenders. Note, however, that upon application, a minimum credit score of 620 is required to qualify for a VA loan.

Apart from this, borrowers must also be able to show that they have the capacity to pay for the loan, which means enough monthly income left over less the other debts and living expenses set by the department per state.

VA-backed Loans Are Not Always the Best Financing Scheme

VA loans are considered a good financial option to military members who own a few assets. However, they are not always the best, mainly because while these loans do not require you to pay for mortgage insurance, they charge a funding fee. This funding fee can cost over 3 percent of the total loan amount. Thus, this option may not be the best option for borrowers who are not staying in the home for a long period of time.

Disabled veterans, however, may be exempt from paying this fee.