VA Loans and Zero Down
You may have heard recent noise from various groups talking about requiring home buyers who obtain financing to put a down payment of at least 20 percent as a loan guideline. This is primarily in response to the housing debacle that occurred from around 2006 to 2009. During that period, a host of new mortgage companies hit the landscape offering a whole new subset of mortgage loans. These new loan programs provided a new twist on loan qualifying.
Over the years, borrowers with poor credit could buy and finance a home by obtaining what is termed as a “subprime” loan. These loans were issued to borrowers with bad credit as long as the borrower put down a sizable down payment, as much as 30 or 40 percent. This additional down payment helped to offset the risk associated with a loan made to those with a poor credit history.
Things soon changed as did the requirement for a down payment. Soon, no money down loans for those with poor credit were readily available and helped fuel the economic downturn. The thinking went that should the borrowers get in trouble they could always sell the home. However, as home values began to plummet, many soon discovered that they were underwater and their mortgage balance was greater than what the home was worth and the foreclosure wave began.
As the finger pointing began, many consumer groups and bureaucrats clamored for a down payment requirement. The thinking is that people are less likely to default if they have a hefty down payment. But those who say that haven’t paid attention to the VA loan program.
The VA loan requires zero down but has historically had the best performance rate of any mortgage program in existence. VA borrows are required to have good credit and verified employment and income and show the ability to repay the debt.
The problem wasn’t zero down; it was to whom those loans were made to.