The Veterans Affairs mortgage program looks like it should be swimming defaults. Most of its borrowers, about 91%, make no down payments. Jumbo loans above one million dollars are frequent. Credit standards are easy. Mortgage originations are three times what they were three years ago.
We’re talking about the Department of Veterans Affairs’ home loan guaranty program, which has mortgage defaults comparable with with prime loan programs.
The VA offers the most attractive home loans on the market. VA loans don’t require monthly mortgage insurance payments.
The VA imposes no credit score minimums. Its average FICO score is 708, compared with the 750 to 770 scores typical for Fannie Mae- and Freddie Mac-backed conventional mortgages at the best interest rates. It does, however, require underwriters to look closely at credit bureau reports and documented income to ensure that borrowers have the ability to repay their loans.
The agency is exceptionally flexible on seller contributions to help buyers pay closing costs, escrows and loan origination charges — more lenient, in fact, than any other national program. That, in turn, can significantly lower the net cash outlays needed from borrowers at closing.