With Refinance Booming, VA Loan Volume Hits 18-Year High

VA loan volume hit an 18-year high in the fiscal year that ended in September, according to data recently released by the Department of Veterans Affairs.

The significant increase — both historical and year-over-year — is another sign that military borrowers are moving away from the tighter conventional lending space and toward the VA loan program’s more flexible credit and income requirements. Loan volume jumped 51 percent from FY11 to FY12, spurred in large part by a boom in refinance loans.

VA loan growth

Record-low interest rates have made the VA’s Streamline and Cash-Out refinance programs increasingly attractive. In some cases VA-approved lenders are able to process Streamlines without an appraisal, which continues to help qualified underwater homeowners take advantage of low rates.

Here’s a look at how VA loan volume has changed in the last five years alone:

FY12: 539,884
FY11: 357,592
FY10: 314,011
FY09: 325,690
FY08: 179,670
FY07: 133,313

The continued growth of the VA loan program comes as consumers continue to face tighter lending requirements in the wake of the subprime mortgage meltdown. Generally, VA lenders are looking for a credit score of at least 620, and the program offers financial benefits such as $0 down, no private mortgage insurance and higher allowable debt-to-income ratios.

Flexible requirements

Many military borrowers can struggle to hit the credit and/or down payment requirements necessary to secure conventional or even FHA financing. The average credit score on an FHA denial in May was 669, according to the National Association of Realtors. More than half the conventional loans issued in August went to borrowers with at least a 740 score.

Every state experienced at least a 25 percent increase in loan volume. Some military-dense states posted big gains in particular, including Hawaii (89 percent), Virginia (69 percent) and California (65 percent).

Riding a Refinance Wave, VA Loan Volume Up 14% in FY11

Riding a wave of new refinance loans, the VA home loan program experienced a huge year in Fiscal 2011, guaranteeing nearly 360,000 loans, according to data provided by the Department of Veterans Affairs.

VA refinance loans surged 40 percent from FY10, as military borrowers sought to capitalize on historically low interest rates. Refinance volume increased at least 40 percent in more than two dozen states, from Alaska to West Virginia.

Purchase loans fell slightly from FY10, but overall loan volume was up 14 percent.

Odds and Ends

Total loans guaranteed increased at least 20 percent in 11 states (Alaska, California, Colorado, Hawaii, Iowa, Massachusetts, Michigan, Oregon, Tennessee, Vermont and West Virginia) and the District of Columbia.

Four states saw VA refinance volume increase at least 70 percent, including a staggering 108-percent jump in Michigan.

With FY11 in the books, the VA has now helped more than 18.7 million borrowers secure a home purchase or refinance since 1944. The total loan amount now exceeds $1 trillion.

Looking Ahead

A tighter lending climate has spurred renewed interest in this long-cherished program. VA loans feature less stringent requirements and require no down payment for the vast majority of borrowers. In fact, 9 in 10 VA borrowers secured financing in FY10 without putting down a dime.

That flexibility, coupled with record-low interest rates, continues to spur military borrowers to explore the home loan benefits earned by their service.

With rates likely to remain low and thousands of service members set to return from Iraq and Afghanistan in the coming months, the VA loan program appears poised for continued growth.