Most people are aware of the widespread problems with the residential housing market in the US over the last two years. At a time when homeowners are facing strikingly high unemployment rates and a struggling economy, falling home values further limit their options by making it difficult, if not impossible, to restructure their finances and reduce monthly costs.
In addition to falling home values, increasingly strict approval guidelines for home financing products and a drastic decrease in home financing options make it especially difficult to find solutions to a strained budget. Homeowners who turn to their home equity to consolidate debt, and even those who simply wish to lower their interest rate or monthly mortgage payments, are finding that most of the home financing options available are too restrictive to meet their needs.
Perhaps the most limiting change in the world of home financing is how much equity lenders will allow homeowners to access. As recently as spring of 2008, homeowners could borrow up to 125% of the value of their homes without paying a dime of mortgage insurance. This meant that an individual whose home was worth $200,000 could borrow up to $250,000 against their home and still be exempt from monthly mortgage insurance premiums.
Today, it is a challenge to finance more than 90% of a home’s value and anyone who wishes to borrow more than 80% can expect high interest and mortgage insurance costs. This is despite the fact that mortgage rates, in general, are still quite low.
For many, this is a difficult concept to understand. Put simply: today’s market offers historically low interest rates, but banks use interest rates to compensate for risk – the more risk, the higher the rate. So, especially in light of today’s tougher approval guidelines, these super low rates are typically only available to individuals with high credit scores who are borrowing a relatively small percentage of their home’s value. Unfortunately, as a result of today’s economy and the struggling housing market, few people meet these criteria.
There is one type of home loan, however, that is still highly flexible and offers low interest rates to those with less than perfect credit who wish to borrow more than 80% of their home’s value. VA loans are available exclusively to current members and veterans of the US military and allow qualified homeowners to refinance up to 100% of their home’s value or 100% of the purchase price on a new home purchase.
Whether the transaction is a purchase or a refinance, and regardless of how much is being borrowed, these loans have low interest rates and require no mortgage insurance. Together with the availability of 100% financing, these features make VA loans one of the most unique and useful types of home financing available today.
Active duty service men and women and veterans who wish to refinance their current home financing or purchase a new home should speak with a knowledgeable home loan specialists who can explain all the home financing options that are available to them, including and especially VA loans, before making any decisions about what type of loan they will pursue.