According to multiple sources, including Inman, a real-estate information and news source, VA loans have “skyrocketed” in 2020, rising about 113% compared to the same period last year.
VA loans are one of the top benefits for the men and women who serve our country, providing zero-down financing that allows veterans to purchase a home with a very low entry cost.
What exactly is happening, what is behind this trend, and why are more veterans choosing to utilize VA loans instead of other loan options? To find out, we need to look at a wide variety of information.
VA Loans: A Rising Trend
Through the first three quarters of 2020, VA loan utilization is rising well above 100% compared to the same period last year. Much of these gains have been driven by a surge in refinancing, as numerous homeowners are taking advantage of low mortgage rates. Veterans with VA loans are also taking advantage of these low rates, as VA refinancing is up, according to some statistics, by a whopping 314%.
A dive into the data from the Department of Veterans Affairs shows this trend:
1st Quarter (2019 vs 2020)
|
Total Loans |
Financing Total |
|
|
2019 |
91,178 |
$2.4 billion |
|
2020 |
256,689 |
$75.7 billion |
2nd Quarter
|
Total Loans |
Financing Total |
|
|
2019 |
119,048 |
$31.9 billion |
|
2020 |
280,079 |
$82.5 billion |
3rd Quarter
|
Total Loans |
Financing Total |
|
|
2019 |
155,685 |
$44.1 billion |
|
2020 |
331,072 |
$100 billion |
In all of the comparisons, we see that the numbers for 2020 are higher than 2019. One of the sharpest rises was in the first quarter, as VA loans almost tripled in use from the first months of 2019 to the first months of 2020. The largest number is from the third quarter of 2020, which is the latest data from the Department of Veterans Affairs. During this period, VA loan usage did not double, but it did shoot up to over 331,000 loans guaranteed by the VA. When you combine all the loans covered by the VA, you have a staggering 100 billion dollars in guaranteed loans. Think about that number. $100 billion in housing was guaranteed by the VA in just three months. Some of this may have been refinancing of loans that were already supported by the VA, but it’s still a staggering number.
To give these numbers more context, we went back and looked at the numbers for 2018. What we found is that 2018 was higher than 2019, but not as high as 2020. Basically, 2018 was fairly high, 2019 (for whatever reason) saw an overall dip in VA loans, then 2020 brought a massive spike in VA loans that has revitalized the mortgage product.
Why the Spike in VA Loans?
The Department of Veterans Affairs only shares the numbers; they don’t provide context as to why these mortgage products have become so popular. Unfortunately, it’s up to us to speculate.
Low Interest Means More Refinancing
One of the top drivers must be an increase in refinancing. As interest rates drop, more homeowners can benefit from the savings these rates bring. Generally speaking, you’ll need about a 1% drop in interest rate from your current loan to the new refinanced loan in order to have any real savings. And since mortgage rates are historically low, it only makes sense that more people are able to use the benefits of refinancing. There are other reasons to refinance, but this is likely a large driver for mortgages and a big reason why VA loans are increasing so heavily.
Lighter Qualification Standards for Eligible Veterans
In a time of market uncertainty (which the real estate industry has navigated well), qualification standards were made more strict. Certain requirements, such as credit score or downpayment, were increased in order to reduce the risk realized by lenders. Some of these tightened qualifications remain to this day, although many have been phased out as the economy begins to creep forward once again.
VA loans, however, have remain relatively unchanged. Although lenders can have their own requirements, VA loans have some of the most lenient qualification standards available. This could mean that in a market dominated by high qualification standards, veterans were (and still are) choosing VA loans over the other options, such as conventional loans.
Market Uncertainty Leaves People Preferring No Downpayment
There is also the fact that many people’s jobs, businesses, and careers have been impacted by the COVID-19 crisis. Millions of Americans, including veterans working in industries of all types, could not say for certain whether they would have a job the following week; even the following day. With that in mind, they may have decided that a zero-down loan guaranteed by the VA is a better option. They can hold on to their savings, keep money in the bank in case of an emergency, and still qualify for a top-quality mortgage.
There may be other reasons, but it seems likely that these two factors played a strong role in the increase.
Mortgage Activity Increasing at All Levels
Mortgage and real estate activity has, across the board, been increasing, so much of the gains in VA loans are simply a result of the overall market, and may not be specific to the exact loan product.
But there were declines in real estate activity. The huge gains in VA loans from the end of the 2019 fiscal year through the third quarter of 2020 show that there is something beneficial about the loans. Whether it’s low interest or the chance to secure financing with no downpayment, there are strong reasons why people are choosing VA loans.
Proud to Bring Top-Quality Service for All VA Loans
Here in San Diego, we have a strong military presence that helps shape the character of our city and the surrounding area. With thousands of men and women who serve our country living and working right here, there is a need for top-quality service for VA loans.
Our team is proud to work with the men and women who have served our country. We understand the details and complexities of a VA loan, and we can help you choose the right mortgage product for your specific needs.
