The No Money Down VA loan
Our economy here in the United States is on the mend and slowly recovering from the Great Recession caused by the housing crisis in the mid-2000s. Even countries abroad are still struggling with the effects of global financial mismanagement. Part of the problem was the existence of exotic loans that were made to borrowers who really shouldn’t have been approved for any loan whatsoever. People received loans with bad, bad credit or received a mortgage without documenting any evidence of income. No money down loans meant borrowers could get a home loan without any “skin in the game.”
But if no money down was a primary culprit in the mortgage mess just a few years ago, why do VA loans with no money down still outperform any other loan program in the market today?
That does seem to be a bit perplexing. If no money down loans meant people could buy a home without any downpayment, why are VA loans still the best-performing mortgage asset around?
VA borrowers have always had the option of a zero down loan. But unlike other loan programs that no longer exist, the VA borrower had to qualify in other ways. For example, VA loans have always required a solid credit history. Not perfect, but still acceptable.
VA loans also require the borrowers prove they can afford the new VA mortgage with copies of their pay check stubs and even income tax returns. In addition, VA borrowers must also pass a “residual income” requirement that is absent from other loan programs.
The residual income requirement means a VA borrower must have a minimum amount of personal funds available each month after all credit obligations are paid. This residual amount will vary based upon household size as well where the property is located, but VA lenders make sure that not only can the borrower afford the monthly payments, but has other funds left over for other things.
No money down isn’t the meanie. No money down with bad credit or no documentation is.