Hopefully, many homeowners and first-time buyers will start experiencing the positive financial impact of today’s low interest rate environment — especially U.S. military veterans and service-members. The U.S. government is trying to make sure lower interest rates support as many military personnel as possible during today’s challenging economic period, namely through the U.S. Department of Veterans Affairs’ “VA Home Loan” program.
Is refinancing your current conventional loan (non-VA) or VA loan into a new VA mortgage the right choice? It doesn’t hurt to explore the idea. Here’s some perspective to get you started:
- Consider the numbers. According to mortgage data firm Black Knight Inc., an enormous share of borrowers and homeowners with LOTS of equity have a mortgage with an interest rate that’s higher than current rates and are most likely eligible to refinance — in fact, more than 90 percent of them! Former and active military service-members are included in this population. On top of that, the government’s VA program is popular, as in $479 billion-popular. That’s the dollar amount of VA home loan originations (purchases and refinances) in 2019 out of total mortgage originations that year — a whopping 10 percent — according to the latest release of Home Mortgage Disclosure Act data.
- Many military veterans and service-members qualify for a VA home loan and don’t realize it. The eligibility rules are pretty clear: 1) Have 181 consecutive days of peacetime service or six years in the national reserves or guard of a certain branch under your belt; or 2) 90 straight days of active wartime duty. In general, usually spouses of individuals who died in active duty qualify too, or from a service-oriented disability. You’ll also have to obtain a COE, or Certificate of Eligibility. This comes with minimal active-duty service requirements based on when you served in the military, as long as you did not receive a dishonorable discharge. Click here to find out if you qualify.
- Know that a VA mortgage has a “VA funding fee” attached to it — usually anywhere between 1.4 to 3.6 percent on the amount borrowed. This is an extra loan-closing cost compared to other non-conventional mortgage programs. This special fee that non-VA borrowers never have to pay helps partially fund the “government backed” part of the VA borrower program. It feels like a steep price to pay, but borrowers can oftentimes roll this fee into the entire mortgage loan. On a side note, you usually must also live in the home.
- Your newly originated VA mortgage will come with all the usual benefits since it is government-backed through the VA Home Loan program. A VA mortgage focuses on the needs of veterans and rewards them for their selfless sacrifice. It’s just one of several mortgage programs backed by the U.S. government for different types of borrowers and comes with major benefits: no down payment in most cases for purchase loans; no monthly mortgage insurance premiums or private mortgage insurance (PMI); lower buyer closing costs; a lower average interest rate; and the ability to refinance a non-VA loan into the VA Home Loan program.
- 17 million U.S. military service-members and veterans are living in one of the lowest mortgage interest rate periods in history. As economic pressures and monetary policy by the Federal Reserve keep interest rates in record-low territory across the entire lending industry, credit unions are experimenting with various options to financially help their members. Whether you’re an active or former member of the U.S. military who’s looking to purchase a home for the first time, move to another property, or refinance your mortgage, you may be able to benefit.
Your credit union can explore how a VA home loan might assist your household — from a lower interest rate if you already own, to getting pre-qualified for a mortgage. Contact your credit union for more information.