Millennial veterans and military members are helping fuel the resurgence of the historic VA loan program. Last year’s 700,000-plus loans were more than double the agency’s total from five years ago.
Younger buyers, in particular, have flocked to these government-backed mortgages during a time of tight credit and flatlining wage growth. The VA says millennials accounted for about a third of all VA loans last year. These low-interest loans offer qualified buyers a wealth of benefits. That is especially true for millennial borrowers, who ofter have dented credit or minimal savings. This $0 down payment loan program was created to help level the playing field for those who service our country, and it still doing so today. Here is a closer look at the big three benefits that make VA loans such a good match for millennial home buyers.
Now Down Payment Requirement
This renowned benefit of VA loans helps veterans purchase without having to spend years savings for a down payment. When determining affordability, qualified buyers in most of the country should know that they can purchase a home for up to $424,100 before having to factor in a down payment.
The average VA loan last year was for about $253,000. Getting a conventional loan for that amount often requires a down payment of at least $12,000. FHA loans require at least 3.5% down. That’s no small sum in either case, particularly for younger veterans and military families.
No Mortgage Insurance
VA buyers also don’t have to pay extra each month for mortgage insurance, a common feature of low-down payment loans. Conventional buyers typically need to pay for private mortgage insurance unless they can put down 20%. FHA loans come with both upfront and annual mortgage insurance premiums.
For example, FHA buyers shell out an additional $140 per month for mortgage insurance on a typical $200,000 loan. That extra outlay can limit your purchasing power, as well as put a hole in your monthly budget.
Most VA buyers encounter a funding fee that goes straight to the Department of Veterans Affairs. Veterans and military members can finance this cost over the life of their loan. Borrowers who receive compensation for a service-connected disability don’t pay it at all.
Flexible Credit Guidelines
VA loans were created to boost access to homeownership for veteran and military families. They’re naturally more flexible and forgiving when it comes to credit underwriting. Lenders typically have lower credit score benchmarks for VA loans than for conventional mortgages. The average FICO score on a VA purchase last year was 50 points lower than the average conventional score.
