One of the top perks the nation offers its veterans is subsided mortgages through the VA Home Loan Program. And in recent years, demand has been surging.

Demand for VA loans has shown a huge increase over the past five years, with home purchase loans up 71 percent from their FY 2007 levels and the number of mortgages refinanced this year 20 times as high. The VA guaranteed 540,000 mortgages in FY 2012, which amounts to nearly a third of the 1.7 million VA home loans currently outstanding.

The increase is due to a number of factors. For one thing, VA loans are one of the only remaining ways to get a mortgage with no down payment, an attractive incentive to young veterans or active-duty personnel with tight budgets. Approximately nine out of 10 VA mortgage borrowers make no down payment.

Lower credit scores allowed, streamlined refinancing

The VA also has less restrictive credit requirements than most conventional mortgages; the average FICO score for VA mortgages last year was reported to be 708, compared to the 750-770 range more typical for conforming Fannie Mae or Freddie Mac mortgages these days. The VA has no minimum credit score requirement.

One reason for the large increase in VA mortgage refinances - and why such a large percentage of VA mortgages were originated within the last year - is that the VA makes it very easy to refinance. Through what's called a VA streamlined refinance, a borrower who currently has a VA mortgage can refinance it almost automatically if mortgage rates decline, as long as they are current on their mortgage payments.

VA borrowers can get a streamlined refinance even if they're underwater on their mortgages, whichhas been a major obstacle for borrowers with conventional loans in recent years.

Eligibility expanded

Another factor behind the increase in VA mortgages in recent years is that eligibility standards were recently expanded. Legislation signed into law by President Obama last August extended eligibility to surviving spouses of veterans whose deaths were not deemed service-related, and sped up the process by which veterans could be deemed eligible for a disability waiver, which would exempt them from paying VA loan origination fees.

Established in 1944 as part of the GI Bill of Rights for returning WWII veterans, the VA Home Loan Program announced just last month that it had topped the figure of 20 million home loans guaranteed under the program. That home was purchased in Virginia by the surviving spouse of a veteran of the Iraq War who passed away in 2010, according to the VA.

Published on November 12, 2012