Don’t Overlook VA LoansSmall Business Funding•Sep 9, 2019• 3 min read
This article is a collaboration between Alice and our friends at ConsumersAdvocate.org:
There are plenty of reasons to join the military. If you joined up on the young side, it probably funded your education. It helped you to see the world. But one thing that the research team at ConsumersAdvocate.org discovered is that vets and active duty service members don’t realize that VA loans can help get them a home. And funding your home could be a big boon when it comes to ensuring that you have capital for your business.
The no-money-down requirements and interest rates below the industry standard make VA loans a better option than conventional loans in almost every circumstance. So why aren’t people taking advantage?
The Consumers Advocate researchers found that only 6% of eligible borrowers seem to be utilizing the program. Consider that for a moment. Of the nation’s estimated 21 million veterans and active duty service members, almost 20 million of them are missing out on saving a bundle. This is especially problematic since, for many borrowers, a VA Loan may be their only path to homeownership.
Why then, when the benefits of VA Loans are so evident, are so few people taking advantage of them? Why are so many people essentially leaving money on the table?
The unfortunate answer is both a lack of good information from one quarter, and an abundance of misinformation from another.
For all that the VA does, it turns out the department is not terribly good about communicating all of its programs to beneficiaries. Worse still, it appears that the various branches of service aren’t doing enough to convey that information either, from induction to discharge. While most recruits know about the educational opportunities that come with military service, it seems there is insufficient effort made to spread the word about the loan program, which falls under the same GI Bill that pays for college. While it’s great that many active duty and former service members are taking advantage of the bill to earn degrees in higher education, the fact that they’re missing out on the loan program is practically criminal.
The other reason so few people are using VA Loans comes down to an active disinterest in the program by most banks. VA Loans not only have lower interest rates than conventional loans, but certain fees associated with the origination of the loan are capped or entirely forbidden by the VA. This means that the borrower won’t have to pay a number of those little fees that ultimately add up to big bucks.
This is precisely the reason why some banks are so reluctant to issue these loans in the first place. Banks are businesses first and foremost, and businesses exist to make a profit. Limiting both the fees associated with a loan and the interest rate on the borrowed amount can add up to a lot of lost profit. According to Business Insider, the median price for a home in America is now almost $230,000. The amount of interest payments the bank will lose from a hypothetical 4.5% interest rate on a conventional loan versus a 4.25% rate on a VA Loan is more than $12,000 over the life of a 30-year mortgage.
Combine this with a healthy layer of red tape — VA Loans are a government program and do require a few more hoops to jump through — and you can see why some banks are choosing to steer eligible borrowers away to simpler and more lucrative conventional loans. But veterans who have done their homework have a lot to gain by taking advantage — a home, for one, but also the financial security they need to fund their business.