Veterans of the United States military have excellent options when it comes to getting a mortgage.
Members of the military who don’t have much money for a down payment on a home loan have a number of options at their disposal. One of the largest credit unions in the United States returned to issuing no down payment loans in 2010. The Department of Veterans Affairs also guarantees no money down home loans.
Advertisement
Because VA loans are backed by the United States federal government, they are able to give borrowers generally favorable loan conditions. These include lower mortgage rates and excellent financing options. But even with these favorable terms, there are still a number of housing developments in 2014 that veterans should be aware of.
New Lending Regulations for Veterans to Consider
The financial crisis in 2008 prompted congress to adopt a new set of regulations for the housing market known as the Dodd-Frank Act. These regulations were designed to make it less likely that lenders would issue risky loans that borrowers would be unable to pay back. And those standards have already gone into effect.
From this point forward, mortgages must meet certain standards in order to be considered “qualified.” A qualified mortgage must not have any of the following features:
- Any period where the borrower is only paying the interest that accumulates on the loan and not the principal.
- A little known feature called “negative amortization.” Negative amortization is a feature in a loan which allows the principal of the loan to get larger over time when a payment fails to cover all of the interest that’s due.
- Loan terms that last more than 30-years. Yes, these types of loans actually do exist.
- In addition to the above restrictions, lawmakers set out 8 new credit and underwriting requirements that must be met for a loan to be considered qualified.
These 8 new guidelines are part of what has been named the ability to pay rule. They are as follows.
- Total assets and/or income verification
- Job status
- Credit history
- Current mortgage payment amount
- Monthly payments on other mortgages
- Monthly payments for mortgage-related expenses, such as property taxes
- Debt obligations, including child support
- Your Debt-To-Income DTI ratio
How VA Loans Will Be Affected
The good news is that very little of all of this will actually have any meaningful impact on the average veteran looking to take out a loan. VA loans have been well known for their thorough underwriting standards. In fact, VA loans have had the lowest foreclosure rate of any other loan type of the market for almost all of the last 5 years.
There is, however, still a sizable portion of the population that will be affected by the new regulations. Current estimates show that approximately 92% of the loans on the market today meet the federal government’s new qualification standards. This means that about 8% of people who want to purchase a home may have some trouble qualifying.
