3 Reasons for Military Homebuyers to Be Thankful This Year
Mortgage credit is thawing, VA loans are booming and interest rates remain within striking distance of all-time lows.
For military homebuyers, there's much to be thankful for this year.
They are a demographic group that continues to embrace both the opportunities and challenges of homebuying. The homeownership rate among veterans and service members is 81 percent, compared to about 65 percent for the nation as a whole, according to the Department of Veterans Affairs.
It's tough to predict what shape the housing market will take in 2015, with both home prices and rates almost certainly on the rise. But this Thanksgiving, there are a few key trends for which many military buyers can give thanks.
Here's a look at three big ones.
VA loan resurgence
The historic VA home loan program celebrated its 70th anniversary in June. But in many ways its zero-down mortgage option is more important than ever.
Veterans and active military members have turned to VA loans in record numbers given the tight conventional mortgage market. During an uneven year for many buyers, VA purchases increased nearly 13 percent year-over-year in 2014 (the VA's fiscal year runs Oct. 1 to Sept. 30), according to data from the Department of Veterans Affairs.
These are more flexible and forgiving loans when it comes to things like credit, debt ratios and assets. It can be tough for many veterans and military buyers to build the kind of financial profile and nest egg needed for conventional financing.
VA lenders often are looking for a FICO score around 620. Conventional lenders may set the benchmark more than 100 points higher, then also require at least a 5 percent down payment. Those can be tall hurdles to clear.
But there's also positive news for military buyers wanting to take a hard look at conventional mortgage options. Signs continue to point to an overall relaxing of credit requirements as the economic outlook improves.
Credit availability in the conventional mortgage market jumped 12 percent in September compared to March 2012, according to a Mortgage Bankers Association index.
At the same time, conventional buyers had an average 755 FICO score in September, a four-point drop from last year's average, according to mortgage software firm Ellie Mae.
The Federal Housing Finance Agency also unveiled plans recently to open lending to borrowers with as little as 3 percent down. The FHFA regulates Fannie Mae and Freddie Mac, the giant government-sponsored entities that purchase two of every three new mortgages.
"These loans will be underwritten more conservatively and will likely come with higher mortgage insurance costs," David H. Stevens, president and CEO of the Mortgage Bankers Association, told Bloomberg News. "History has shown that these loans, when properly underwritten, perform well."
After a stretch of historically low interest rates, many economists and housing experts expected the party to end in 2014. Heading into this year, the chief economist of the National Association of Realtors, Lawrence Yun, predicted rates would hit 5.4 percent by year's end.
Instead, global political issues, a stop-and-start recovery and other factors combined to keep rates down. The average rate on a 30-year fixed mortgage was 4.43 percent in January, according to Freddie Mac.
For October? Try 4.04 percent.
Forecasts for 2015 vary, but it's likely the average rate will near 5 percent, if not top it.
"The impact of rising interest rates on affordability will be minimal as long as job creation keeps pace," Yun, the NAR economist, said earlier this month at the trade group's annual convention. "Furthermore, if the credit box slowly begins to open up, that will also mitigate the impact of rising rates."
To be sure, buying a home isn't the right fit for every veteran or military member. Military service can come with frequent relocation and unique financial strain, both of which can make homebuying untenable or flat-out undesirable.
But for those eyeing a home purchase on the horizon, there's a lot to be grateful for this year.