Study shows VA loans help veterans overcome upfront costs
Veterans Affairs (VA) loan borrowers are more likely to purchase homes with low or zero down payments than those using conventional loans, according to a new research from Realtor.com.
Over the past year, nearly 75% of home sales with VA loans required no down payment, while close to 84% had down payments under 10%.
VA loans allow veterans to purchase homes with little or no down payment, unlike the average 19.7% down payment seen in conventional loans. While some VA borrowers opt to make down payments to reduce their loan principal, the average down payment for VA loans is just 4.6%, significantly lower than for conforming loans.
VA loans also offer greater flexibility in credit requirements, with 23.2% of recent VA borrowers holding Fair credit scores, compared to only 4.5% of conforming loan borrowers. Across all credit score groups, VA borrowers consistently make lower down payments as a percentage of purchase price than conforming borrowers.
The report highlighted how VA loans help veterans and military families overcome down payment barriers that can otherwise delay homeownership.
"Realtor.com compared loan characteristics of VA and conforming borrowers to highlight the many advantages that VA loans offer enabling Veteran households and the industry professionals working with them to better grasp the impact that this has on Veteran households and homeownership," said Realtor.com chief economist Danielle Hale.
Despite the significant advantages of VA loans, only 30% of veterans and active-duty service members were aware of the zero-down-payment benefit, Hale said, citing a survey by Veterans United Home Loans.
The VA loan program offers several advantages that enhance affordability for military households. Although VA borrowers often take on slightly more debt due to lower down payments, they benefit from lower interest rates and fees, resulting in reduced monthly payments.
For first-time buyers who use a VA loan with 0% down, monthly savings over a conventional loan (with an 8% down payment) average $69, or $824 annually.
Read more: Mortgage applications surge as VA borrowers take advantage of lower rates
This affordability advantage is reflected in homeownership rates. In 2022, military households in the top 100 metro areas had an average homeownership rate of 77.3%, 8.5 percentage points higher than non-military households, even when adjusted for age differences.
Myrtle Beach, S.C. had the highest military homeownership rate at 92.9%, followed by Des Moines, Iowa (88.8%) and Deltona, Fla. (87.5%). Urban Honolulu, Hawaii, and San Diego, Calif., however, had the lowest military homeownership rates, at 55.1% and 62.6%, respectively.
“With this research, we hope to empower Veteran households with the knowledge and tools they need to make informed decisions about their homeownership goals and financial well-being," Hale said in the report.
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