VA loans rise as housing market shifts toward buyers

“Military members have made sacrifices to protect our home,” said Bill Banfield, chief business officer at Rocket. “VA loans are one of the most powerful benefits available to veterans and service members, opening doors to homeownership with zero down payment, no monthly mortgage insurance and flexible credit requirements.

“Now is a prime time for veterans and service members to take advantage of them. VA loans have a better chance of getting accepted in today’s buyer’s market than they did several years ago, when buyers were competing against each other and sellers were calling the shots.”

Buyers gain leverage

The number of VA loans increased 3% year-over-year in August — while conventional loans declined 9%.

Report analysts attribute the shift to changing market conditions that now give buyers more negotiating power.

“A buyer can make an offer with a VA loan, put virtually no money down, ask for $5,000 in closing credits, and get their offer accepted,” said Jim Fletcher, a Redfin Premier agent in Tampa, Fla. “The market is slow, there’s a backlog of inventory and buyers are in the driver’s seat. Florida historically has had a lot of all-cash buyers, but recently, there are more financed buyers — and many of them are able to win homes with ultra-low down payments while also having the seller cover most closing costs.”

During the pandemic’s competitive housing market, VA buyers often lost out to those offering larger down payments. In late 2020 and early 2021 — when mortgage rates hit record lows — less than 6% of mortgaged buyers used VA loans.

Sellers still weighing higher offers

Even as VA loan usage rises, these mortgages remain limited to eligible service members and veterans.

Sellers sometimes prefer conventional loans, which can bring higher offers or fewer contingencies, the report said.

“The overall market is slower than usual, but move-in ready houses in desirable neighborhoods are still selling fairly fast,” said Matt Ferris, a Redfin Premier agent in Virginia. “I’ve seen a few military sellers recently who have houses that fall into that category. Sometimes they’d ideally like to sell to another military family, but then they get four, five, six offers, and the best is from a buyer using a conventional loan, and they’re offering $10,000 more than the offer using a VA loan. The seller takes the higher offer with the conventional loan because they need to make the most money from the sale.”

In August, 13.9% of mortgaged buyers used an FHA loan — down slightly from 14.1% a year earlier. Conventional loans continued to dominate the market, accounting for 78.9% of all home loans.

VA loans most common in Virginia Beach

Virginia Beach, Va., led all major U.S. metros in VA loan usage, with 43.2% of mortgaged buyers using one in August — the highest share ever recorded for the city.

Jacksonville, Fla. (17.2%) and Washington, D.C. (16.7%) followed, with Washington seeing its highest August share in 14 years. San Diego (15.2%) and Las Vegas (11.9%) rounded out the top five.

Virginia Beach also saw the largest year-over-year increase, up from just under 40% last August. Other metros with notable gains included Orlando, Fla. (8.2%, up from 5.3%), and San Diego (15.2%, up from 12.3%).

Of the 40 metros analyzed, 32 recorded an increase in VA loan usage. In the remaining areas, declines were generally about one percentage point or less.