59% of Veterans Believe They Will Be Able to Buy the Home of Their Dreams

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Even in the face of heavy competition, vets feel good about their chance of landing the perfect home.

As the country seeks to recover from mass layoffs and financial challenges, 6 out of 10 U.S. military veterans believe that their financial situation will get rosier this year, even if the broader economy does not. And when it comes to housing, vets report feeling optimistic regarding their chances of buying the home of their dreams.

Optimism abounds

According to the 2021 Veteran Homebuyer Report by Veterans United Home Loans, nearly half of all veterans had to change their home purchase plans last year due to the pandemic. Still, most say they're confident about buying this year. About 1 in 3 vets plan on buying a home in 2021, and 58% (roughly 11.3 million vets) say they plan to buy within the next five years.

While home buyers across the country remain frustrated by low housing inventory, high prices, and difficulty getting into any house -- 59% of vets believe they will be able to land their dream home.

So, what's the difference between civilian buyers and military veteran home buyers? The power of the VA home loan.

Benefits of a VA loan

Veterans have good reason to feel optimistic about buying a house. VA home loans were created shortly before the end of World War II and intended to help returning soldiers buy a home. They remove many of the barriers that prevent other home buyers from breaking into the market.

No down payment necessary

VA loans offer 0% down payment, meaning veterans are often in a position to purchase a home earlier than their civilian counterparts. Vets are not forced to save for years to come up with a down payment. Instead, they can focus on finding a home in a price range they can afford and save the money needed to pay necessary closing costs.

Low interest rates

Overall, VA has offered the lowest interest rates on the market for six years running, according to Chris Birk, vice president of Mortgage Insight and director of Education for Veterans United. When a single interest rate point can cost thousands in interest, a lower rate is a significant benefit. Here's the difference a single point in the interest rate can make over the life of a 30-year mortgage.

Loan Amount Interest Rate Monthly Principal and Interest Approximate Interest Paid
$320,000 2.5% $1,264 $135,000
$320,000 3.5% $1,437 $197,000
$320,000 4.5% $1,621 $264,000

No ongoing PMI

Private mortgage insurance (PMI) is an ongoing monthly cost, typically paid by home buyers who put less than 20% down on their loan. VA loans do include a mandatory funding fee of 1.4% to 3.6% of the loan amount (depending on how much buyers put down, whether they're active duty, and if they've used the VA benefit to buy another home). But they get to skip the dreaded PMI payment.

Lower allowable credit score

VA loans are backed by the federal government (meaning the government will cover the loss if a VA buyer defaults on their loan). But they're administered by VA lenders. Each lender sets their own minimum allowable credit score, although most will accept a score as low as 620. That score puts a buyer firmly in the FICO "fair credit" category.

Limits on closing costs

The VA caps how much can be charged for certain closing fees, leading most VA buyers to pay less at closing time. VA buyers can also ask the home seller for help paying some fees (up to 4%). Although a seller's market with low inventory may be the wrong time to make the request, it's worth a try when inventory is high.

The rate of homeownership for veterans is higher than the rate for American society as a whole (80% vs. about 65%). Chris Birk thinks that has a lot to do with veterans wanting to own a piece of the American Dream. If that's the case, a VA loan certainly makes it easier for them to accomplish that goal.

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