Closing the homeownership gap for service members
Veterans can afford far fewer homes than they could 10 years ago, but new programs — and savvy agents — can help more veteran buyers get to the closing table.
Key points:
- A new report finds that roughly one in five U.S. home listings are affordable to the typical borrower using a VA loan.
- While veterans have access to favorable borrowing terms via the VA loan program, coming up with cash for closing costs can also represent a challenge.
- Some lenders are introducing programs for service members aimed at lowering the barriers to homeownership — but agents need to be aware of them.
While current and former service members have access to the venerable VA loan — which offers more favorable borrowing terms, including a 0% down payment — rising home prices are still making it hard for many veterans to achieve homeownership.
Addressing housing affordability in a meaningful way would require a concerted effort from policymakers, private developers and individual communities, but new veteran-focused programs are also seeking to lower the barrier to homeownership for service members.
Most vets can't afford a home
A new report from Redfin highlights the growing affordability challenges for service members and veterans hoping to buy a home, concluding that the typical veteran buyer can afford only a small fraction of the homes that are currently for sale nationwide.
While the housing affordability crisis is keeping many Americans from achieving homeownership, veterans who choose VA loans appear to be uniquely disadvantaged. According to Redfin researchers, just over one in five (21.8%) of U.S. home listings are affordable to the typical military veteran using a VA loan. Non-veteran households using a conventional loan have a slight edge, with 22.8% of listings affordable to those households.
Veterans who use a conventional loan are better positioned than either group, however, as they can afford 26.5% of the homes for sale.
Why the difference? Most VA borrowers don't make a down payment, which "allows them to get their foot in the homeownership door and start building equity," Redfin Economist Grishma Bhattarai said in the report. "But it comes with the tradeoff of a bigger loan and higher monthly costs," Bhattarai said, factors that potentially reduce affordability.
Regardless of loan type, veteran borrowers are significantly worse off than they were a decade ago. In 2015, 53% of all U.S. home listings were affordable to service members using a VA loan, and 57% were affordable to those using conventional loans, Redfin found. That's because the median home-sale price has increased by roughly 100% over the past decade, while the typical veteran's income has risen just 48%, leaving many priced out despite the advantages of VA loans.
Closing costs also a barrier for some veteran buyers
In tandem with the VA loan, other offerings have emerged that aim to help current and former service members beat the affordability hurdle and close on a home. While many veterans can qualify for a mortgage, coming up with the thousands of dollars typically required at closing often means draining savings — something many are reluctant or unable to do.
One national mortgage company, NewDay USA, hopes to address that problem with its NewDay Home product. Announced earlier this month, the offering is designed to help veterans and service members overcome the barrier of steep closing costs by allowing qualified borrowers to finance those costs over time. Borrowers also have the option to pay no interest if the closing costs are repaid within a year, the company said.
The program effectively allows veterans to compete with all-cash buyers who can close quickly and provide sellers with more favorable terms, NewDay USA said. And the company aims to scale up quickly, setting an ambitious goal "to put one million Veterans in homes," Neil Brooks, President of NewDay Home, said in the program's news release.
There are also a number of direct cash grants and other down payment assistance programs, such as Soldier Next Door, designed to help veterans in their homeownership journey.
Educated agents are another valuable asset
Agents can play a key role in helping service member clients get to the closing table. For many veterans, the path to homeownership doesn't hinge on financing alone — it also requires the expertise of a real estate agent who understands the unique features of VA loans and other programs for vets, and who knows how to present offers from their veteran buyer clients in the best possible light.
That isn't always a given. At a mortgage advocacy event in April, retired Air Force veteran and loan officer Gay Veale said she noticed a widespread lack of education and support for veteran borrowers soon after getting into the mortgage business. "I started to see how many veterans didn't understand their own VA loan benefits — and how many professionals in the industry didn't either," she said.
This presents both a challenge and an opportunity to agents. As affordability tightens, the veteran buyer pool of roughly one in 10 homebuyers nationally remains a significant segment of homebuyers. Agents who educate themselves on VA loans and partner with experienced lenders could find themselves with a competitive advantage — and potentially an additional pipeline of prospective clients.