by Maurie Backman | Updated July 30, 2021 - First published on July 24, 2021
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One loan product is making homeownership more attainable for younger buyers.
Today's housing market has been extremely difficult to navigate despite the fact that mortgage rates have been sitting at or near historic lows since the middle of 2020. The reason? Housing inventory has been very limited, and as a result, home prices have soared on a national level.
Now, rising home prices don't just mean higher mortgage payments -- they also mean having to come up with a bigger down payment at closing. And for many buyers, that's a deal breaker. But there's one loan product out there that doesn't require buyers to put money down at closing at all, and it's helping younger borrowers get a piece of the real estate action.
Secure access to The Ascent's free guide that reveals how to get the lowest mortgage rate for your new home purchase or when refinancing. Rates are still at multi-decade lows so take action today to avoid missing out.
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According to a recent analysis by Veterans United, VA loans for new home purchases were up 123% year over year for Generation Z veterans aged 18 to 24. Among millennial buyers, VA loans were up 16%. In fact, loans for Gen Z and millennial buyers made up 52% of all VA purchase mortgages during the first half of 2021.
VA loans offer one main advantage over other mortgages -- they don't require any money down at closing. As such, they're a good option for borrowers who can afford a monthly mortgage payment but may not have a lot of money in savings to part with.
As the name implies, VA loans aren't available to everyone. They're reserved for U.S. military vets and their surviving spouses, as well as active members of the U.S. military.
There are also certain requirements that VA borrowers must meet. First, VA loans must be used to purchase a home that a borrower will live in -- they can't be used for an investment property that's rented out to other people. Also, while there's no official minimum credit score associated with VA loans, individual lenders can impose their own minimums. Borrowers are generally advised to go in with decent credit -- ideally, a score in the low-to-mid-600s or higher.
Otherwise, VA loans tend to offer competitive interest rates, and they don't charge any ongoing monthly fees (unlike FHA loans, for example, which do come with ongoing mortgage insurance premiums).
That said, VA loans charge borrowers a funding fee, the amount of which hinges on how much of a down payment a borrower is able to make. Disabled veterans, however, are often exempt from this fee.
If you qualify for a VA loan and are looking to buy a home, it pays to shop around with several VA lenders and see what offers they come back to you with. While homes today are more expensive than normal, you may find that you can swing one if you snag a low enough interest rate on your mortgage and you're not required to empty your bank account to come up with a down payment. And that leaves you with more financial flexibility to tackle the various homeownership costs you might encounter once you sign that loan and your purchase is complete.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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