The US Department of Veterans Affairs’ home loan program has the most arduous task of any government loan program: Give those who make the American dream possible the best chance to live that same dream. It’s a big task, and the VA has answered the call.
2015 saw the VA back a record 631,151 loans. That is a forty percent increase from 2014, and nearly a 400 percent increase since 2007. While these numbers are due to historically low interest rates, the bottom line is that regardless of numbers, the VA is offering veterans relief from today’s stringent lending laws, while protecting them from the foreclosures that scarred the housing market in 2008.
The building of the VA loan has been a decades long process that has yet to be perfected, but is always making progress. When servicemen returned home after WWI, the government gave them about $60 and a train ticket home. It wasn’t until 1944 that Congress passed the GI Bill of Rights, and the VA loan entered its infancy. Since then, it has helped over 20 million veterans become homeowners.
Like most things that are 71 years old, the VA loan of 1945 is hardly recognizable from what we have today. In 1945, the loan was only eligible to WWII veterans, the government only backed 50 percent of the loan, and the loan cap was $4,000 at a time when average home prices were $8,300. With today’s inflation that is like capping a loan at $53,000 when average home prices are $110,000.
Today, VA loans are capped at $417,000 (in most counties) while the average home price is $330,000. The VA also backs 100 percent of all loans, which makes it less risky to lenders, who therefore offer rates which on average are 0.31% lower than conventional loans. In addition, VA loans don’t charge Private Mortgage Insurance, and the VA picks up fees ranging from termite inspections to postage. In summary, it is a pretty good deal.
But it is important to remember that nothing is permanent. VA rules did not change one bit from 2014 to 2015, yet activity rose 40 percent. When rates no longer make the VA loan such an obvious choice, it is important to understand the gripes people have with the VA, or what head of VA Loan Program Mike Frueh calls, the “myth of my father’s VA.”