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Shattering Four Myths About VA Loans

The VA home loan benefit is hard-earned through service and sacrifice. However, myths and misconceptions about the program all too often have discouraged agents and their buyers from taking advantage of the tremendous benefits that accompany the purchase of a home with a VA mortgage loan.

Recent data from the U.S. Department of Veterans Affairs and Ellie Mae have begun to “bust” some of the myths surrounding VA loans. Ellie May began including VA loan statistics in its “Origination Insight Reports” in May 2014, and its most recent data, published on Nov. 20, are proving the old VA loan myths are just plain wrong.
Here are four myths and misconceptions about VA loans and why they’re no longer relevant:

Myth: VA loans carry high note rates.

Fact: VA loans have a 30-year note rate that consistently is lower than both conventional and FHA loan products. The October 2014 Ellie Mae report shows a 4.12 percent 30-year note rate for VA loans as compared with 4.23 percent for FHA loans and 4.49 percent for conventional loans.

These days, a VA loan can save veterans and military families real money. When lower rates are coupled with no down payment and no mortgage insurance — both benefits of the VA loan program — VA buyers likely will save a significant amount of money over the life of the loan.

Myth: VA loans don’t reach the closing table.

Fact: VA loan applications closed at a rate of 73 percent during the most recent period, compared with 67.9 percent for conventional loans and 61.5 percent for FHA loans, according to the Ellie Mae report. That means a growing percentage of VA buyers are reaching the closing table.

Part of the increase is a result of more flexible credit standards for VA loans. Today, homebuyers can purchase a home using their VA benefit even if they have less than sterling credit. Many lenders set a credit score standard of 620 for VA buyers, which is approximately 100 points lower than the scores they generally look for with conventional purchases.

Myth: VA loans take longer to close.

Fact: The old belief that VA loans take much longer is just that — old. A streamlined process means VA homebuyers are closing on their homes almost as quickly as their counterparts with conventional mortgages.

According to the Ellie Mae report, VA and FHA purchase loans closed in an average of 40 days. That’s on par with an average of 39 days to close with the average conventional purchase. Although “days to close” statistics may not have a direct impact on the growth in the use of VA loans, it’s an important statistic when viewing this loan product as a viable option compared to FHA and conventional financing.

Myth: There’s no growth in VA loans.

Fact: The Department of Veterans Affairs has offered a mortgage guarantee to veterans and service members for 70 years. Since its inception, the department has guaranteed more than 20 million loans.
These numbers are growing: From fiscal year 2007 to fiscal year 2013, the volume of VA loans guaranteed increased by 370 percent.

Even more recently, the Department of Veterans Affairs reported fiscal year 2014 numbers that showed VA-backed purchases were up 13 percent over fiscal year 2013. With that kind of growth, this is a loan product both real estate agents and their clients can no longer afford to ignore.

It’s also a loan option that many veterans and service members still don’t know exists. Do your part to save your buyers money by asking them if they’ve served in the military, and if they have, educate them about the benefits that a VA loan can provide.