Veterans and military personnel have used Department of Veterans Affairs home loans since the start of the pandemic at historically high rates.
The uncertainty surrounding the pandemic has caused major changes in the housing market. Falling prices and legislation easing restrictions on VA home loans have both contributed to a nationwide boom in troops and veterans using their benefits.
This has an impact in Hawaii, historically an expensive housing market. In Honolulu, VA loans from April 1 to June 30 were on the rise 206% compared to the same period last year. This is the largest increase for a large metropolitan area in the United States.
“I don’t think anyone could have expected this historic increase,” said Chris Birk, Director of Education for Veterans United Home Loans who has data tracking. With the end of the year, he expects the numbers to be even higher.
A VA loan is a mortgage for military veterans, members of the military and spouses of deceased military personnel. The VA itself does not make loans, but issues guidelines and guarantees loans eligible for the program.
Loans can be used for both buying and refinancing homes. In Honolulu VA, refinancing loans have increased 403% since last year.
“Almost all of the veterans are refinancing right now because they would be dumb not to,” said Elias Halvorson, a Honolulu VA Loan Specialist and Air Force veteran, noting the current low interest rates for loans.
Every county in the United States has a compliant loan limit, which is a cap on the size of a loan that the federal government will guarantee. Loans exceeding this limit are called “jumbo loans”.
Until recently, if the price of a home exceeded the county loan limit, the buyer had to make a 25% down payment.
“Some of these people could afford to buy a house, had a job and made enough money, but maybe didn’t have enough money on hand to make that down payment,” Birk said.
In 2019 the credit limit complies for a family unit in Honolulu was $ 726,525. Blue Water Navy Vietnam Veterans Act, 2019 entered into force at the beginning of 2020, removed the mortgage loan ceilings.
With the new legislation, VA loans do not require mortgage insurance or a down payment even if a loan exceeds the county limit. It’s a big deal in Hawaii, one of the most expensive housing markets in the country.
“Those two things make getting a loan a lot more possible,” said Halvorson.
Last year, the prices of housing for a family home in Oahu hit record. But according to Zillow, home values in Honolulu have fallen 1.8% over the past year, and Zillow predicts that they will drop 3.4% over the next year.
Halvorson noted that when it comes to house prices, a drop of a few percent makes little difference in a place like Texas where home values tend to be lower. But in Hawaii, even a slight fluctuation can add up to thousands of dollars.
Halvorson said he meets a wide range of people using the perks. Sometimes it’s military personnel in Hawaii who buy a house either as an investment or in the hope of moving there. Others are retirees who decide to make a new start in the islands.
A notable group is made up of Hawaii veterans who use their perks to return home. The territories of Hawaii and the Pacific Islands have historically high recruitment rates. In a study examining recruitment data from 2003, Hawaiians and Pacific Islanders were overrepresented in the US military by 249% compared to other ethnic groups.
But many veterans are unaware that they qualify for these loans.
“A lot of it is education,” said Halvorson, explaining that the military often doesn’t tell veterans all the benefits they are actually entitled to as they transition to civilian life. “This is the best loan there is,” he added.
For years, rising rents and house prices, as well as the high cost of living, have pushed many Islands.
Joining the army was a way for young people to both leave and earn a regular salary. Now, for some veterans, their benefits provide a way home.
“I have certainly met a lot of people who come home and want to invest in a place for themselves and their ohana,” said Halvorson.
According to VA 2016 data, California had the most Pacific Island veterans, followed by Hawaii, the Pacific Island Territories and Texas. For Asian American veterans, the primary places of residence were California, Hawaii, Virginia and Washington State.
“What’s interesting and exciting is that Millennial Veterans are really driving this increase in Honolulu,” Birk noted. Purchases by Millennial Veterans in Honolulu were up 22% from a year ago, while refinancing by Millennial Veteran owners rose 659%.
Overall, Millennials have struggled to enter the housing market.
“Young servicemen are able to do it just because of this opportunity they deserve,” Birk said.
But Birk warned that just because a veteran qualifies for a loan doesn’t mean he has to take it. Not all veterans have a financial or life situation stable enough to commit to a home.
Millennial veterans faced unique challenges re-entering civilian life.
Even before the pandemic, unemployment was falling increase for post-September 11 veterans, making the idea of buying a house out of reach. New legislation has eliminated VA loan limits, but not the responsibility for repaying loans.
While millennials take out the most VA loans, each generation is seeing noticeable increases. Gen X loan utilization is up 215% in Honolulu and Baby Boomers are up 211% in terms of total loan utilization.
Purchases by WWII and Korean War veterans fell 17% as these generations age, but this population still experienced a refinancing boom with a 354% increase.
The pandemic has dramatically changed the lending process with virtual home visits, inspections and assessments. Despite this, Birk noted that the average loan in June closed in 47 days.
“Despite these disparate issues impacting the process, the process is moving ahead very quickly for military and veteran buyers,” said Birk.