In honor of Veterans Day, a new report from Realtor.com® and the National Association of Realtors® (NAR) has shed light on a critical benefit for veterans: the VA home loan. This research reveals that using a VA loan can help eligible military homebuyers purchase a home more than four years sooner than conventional loans, offering a unique opportunity to achieve homeownership faster. However, the study also highlights a concerning trend—many veterans remain unaware of this benefit, particularly in high-cost housing markets where it could be most impactful.
The Advantage of VA Home Loans
For many first-time homebuyers, one of the most significant barriers to homeownership is the need to save for a down payment. For veterans, the VA home loan eliminates this obstacle, offering a 0% down payment. According to the study, this feature makes VA loans especially valuable, allowing military families to secure a home sooner. The data revealed that for a typical first-time VA loan borrower, the time needed to save for a down payment would be 4.4 years shorter compared to a conventional loan, assuming a 15% savings rate and a median income of $78,700. With a more aggressive savings rate of 20%, the timeline could be reduced to just 3.3 years.
The study’s analysis also shows that this time savings varies significantly by region. In places like New York City, veterans using VA loans can shorten their homeownership timeline by 6.5 years, while in Los Angeles, the time difference is as much as 10 years. This makes VA loans a vital tool for veterans in high-cost markets, especially when mortgage rates remain elevated.
Low Utilization of VA Home Loans
Despite the clear financial advantages of VA loans, many veterans are not utilizing this benefit, particularly in expensive markets. In some high-cost areas like Los Angeles, New York, and San Francisco, the study found that VA loan usage is significantly lower than in markets with more military households, such as Virginia Beach and Colorado Springs. For example, in New York, where about 30% of owner-occupied units are in multiple-unit buildings, VA loans cannot be used for co-op purchases. This restriction, along with high property prices, limits the effectiveness of the VA loan program in these regions.
Interestingly, the study notes that markets near military bases tend to have higher VA loan utilization, as these areas have a larger concentration of military households who are more aware of the benefit. For example, Virginia Beach and Colorado Springs both show high utilization rates, with 42.1 and 43.1 VA-financed home sales per 1,000 military households, respectively. In contrast, cities with lower military populations, such as Salt Lake City and Fresno, have lower utilization rates, despite the fact that VA loans could provide significant advantages in these areas.
Barriers to Utilization
Several barriers contribute to the underutilization of VA loans, particularly in markets with high property values. While the 0% down payment is a significant advantage, veterans still face challenges with qualifying for loans in markets where home prices are much higher than in other regions. Even though the VA removed loan limits for veterans with full entitlement in 2020, stricter requirements apply to those without full entitlement, which can require a down payment or limit the loan amount.
Moreover, there is a misconception among some buyers and sellers that VA loans are slower or more complicated to process than conventional loans. This misconception often leads veterans to choose conventional financing instead, even if they could benefit from the VA loan program. Additionally, the presence of co-ops, which VA loans cannot be used to purchase, further complicates the program’s reach in certain urban areas.
The Path Forward
Despite these challenges, the VA home loan remains a critical resource for veterans and active-duty service members looking to achieve homeownership. As Lawrence Yun, Chief Economist at NAR, emphasizes, the VA loan program “opens the door to homeownership for more than 48 million veterans and service members” and serves as a “shining example” of federal policy that can help strengthen communities.
To address the underutilization of VA loans, experts suggest increasing awareness of the program’s benefits and providing more targeted support in high-cost markets. Realtors and industry professionals have a key role to play in helping military households navigate the complexities of the housing market, ensuring that veterans fully understand the advantages of the VA loan. In addition, policymakers may need to explore ways to further adjust the program to better meet the needs of veterans in competitive, high-price markets.
As this study shows, the 0% down payment feature of VA loans provides an invaluable opportunity for veterans to achieve homeownership sooner, but its benefits must be better communicated and utilized to ensure that all eligible buyers can take advantage of this significant financial resource.
