Will rising interest rates impact VA loans for first-time buyers?
The VA loan is an important financing tool for VA-eligible borrowers to realize their dream of home ownership. In 2021, one out of two VA borrowers was a first-time buyer (FTHB).
Last year, mortgage interest rates hit record lows. VA FTHB’s average interest rate was 2.90% and FTHB VA’s quarterly purchase loan volume remained strong. In Q3 2021, it hit an all-time high of over $19 billion for that quarter, up $174 million from Q3 2020. And since 2017, VA purchase loans have helped about 200,000 to 230,000 first-time buyers eligible for VA. per year become owners.
This translates to an average of $56 billion in mortgages per year. In 2021, the VA FTHB segment reached approximately $69 billion, according to ginnie mae Loan-level disclosure data updated through January 2022, analyzed in GovLoansVision.
So what will 2022 look like for VA FTHB borrowers?
Our notebook calculations tell us that if interest rates continue to climb, we could see a lower FTHB VA volume of around $58 billion in 2022. On the other hand, if rates stabilize and remain between 3 and 3, we could see FTHB’s VA Buy Volume at $70 billion in 2022.
Figure 1: Forecast of FTHB VA buy origins
Source: Polygonal search. Provides are updated monthly.
What is the size of the addressable market for VA borrowers?
VA FTHB borrowers will come primarily from the U.S. veteran population (with the remainder being current service members and family members of eligible veterans). The U.S. veteran population stood at 18.44 million in 2020 with a median age of 68, according to the CPS Veteran Supplement (2020), analyzed by Polygon Research in CPSVision. To narrow down the size of the addressable market of VA borrowers, we study two sub-segments: veterans with service-related disabilities and veterans age 50 or younger.
In 2020, 3.82 million veterans had a service-related disability, making them eligible for a wide range of benefits, including waiving VA financing fees on a mortgage. Figure 2 presents a distribution of these veterans by age group and location.
Figure 2: Veterans with service-related disability by age group and geography (region)
Source: Polygon Search, CPSVisionSupplement for veterans August 2020
Loan originators can learn about veterans with service-related disabilities in their communities and markets and seek opportunities to provide high-quality education and financing in an efficient and transparent manner.
Expanding the scope to include all veterans of a certain age bracket, regardless of disability status, we estimate that approximately 4 million veterans are under age 50, with a median household income of 91 $400 according to ASEC March 2021. (source: Polygon Research, CPSVision).
Figure 3: Breakdown of 50-year-old veterans–Old or younger by state
Source: Polygonal searchCPSVisionA SECOND March 2021
This statistical breakdown of veterans (age 50 or younger) by state in Figure 3 closely tracks the data on VA FTHB mortgage purchase applications found in Ginnie Mae’s loan-level disclosure data. The top five states for veterans who were first-time home buyers and used VA purchase loans to purchase homes were TX, FL, VA, CA, and NC – Figure 4.
Figure 4: Top 5 States by Number of VA FTHB Borrowers
Source: Polygonal searchGovLoansVision updated via January 2022
What was the credit profile of first-time home buyers in Virginia?
In 2021, the average first-time VA home buyer had a credit score of 710, DTI of 40%, borrowed 99% LTV loans of $319,000 at 2.90% (see Figure 5 ). VA FTHB borrowers had a higher credit score and lower DTI than FHA FTHB borrowers. In the Vetted VA community, as a controlled sample, the average VA purchase borrower (both FTHB and repeat) had a credit score of 717 and a DTI of 40.7% and borrowed LTV loans 98% from $394,000 to 2.69%.
Figure 5: Origins of first-time home buyer purchases in 2021
Source: Polygonal searchGovLoansVision, updated via January 2022
Given the good creditworthiness of VA borrowers, and in particular first-time home buyers, and given the size of the FTHB VA loan market – estimated at $58 billion to $70 billion – loan originators and businesses can view VA loans as a great business opportunity in 2022.
But with this opportunity comes great responsibility – to provide the best service to our active duty veterans and their spouses, and to protect them from abusive lending practices. Understanding the VA-eligible borrower and understanding the financing tools to meet their credit needs is not only an ethical thing to do, but also a necessary business skill to achieve scale and profitability.
Data: VA First-Time Home Buyer (FTHB) Borrower is the actual reported data found in Ginnie Mae loan-level disclosure datasets containing over 800 million rows and modeled in GovLoansVision by Polygon Research.
Veterans analysis is extracted from CPSVision, which includes CPS monthly data through December 2021, ASEC March 2021 and Veterans Supplement August 2020.
Statistical records of over 325 million people and over 127 million households. • Forecasts are updated monthly.
Nathan Knottingham is the COO of Vetted VA.
This column does not necessarily reflect the opinion of the editorial department of RealTrends and its owners.
To contact the author of this story:
Nathan Knottingham at [email protected]
To contact the editor responsible for this story:
Sarah Wheeler at [email protected]