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Which Mortgage Loans Do Service Members Prefer?

The Consumer Financial Protection Bureau [1] released it’s latest quarterly consumer credit trends report on Friday, which focused on mortgages made to first-time homebuying service members. The data for the report came from the Bureau’s Consumer Credit Panel (CCP) providing a unique look at the mortgage choices and outcomes between 2006 and 2016. Overall, the report showed that service members chose more VA mortgages than conventional mortgages, and the increase was equal among those with prime or nonprime credit scores.

When buying a house, service members have the option of taking out a home loan guaranteed by the U.S. Department of Veterans Affairs (VA), or a conventional loan which is regulated by a different government agency, such as the Federal Housing Administration (FHA) or U.S. Department of Agriculture (USDA). The two differ in many ways such as VA home loans allow a purchase with no down payment and without mortgage insurance and may provide unique loan-servicing protections.  

The report indicated that first-time homebuying service members using VA mortgages dramatically increased from 30 percent before 2007 to 63 percent in 2009. Among non-service member first-time homebuyers there was an equal increase in the use of FHA and USDA mortgages. However, non-service members’ reliance on FHA/USDA mortgages declined after 2009, while service members’ reliance on VA loans continued to increase up to 78 percent by 2016.

Part of the reason for the shift towards VA loans was due to a widespread shift away from conventional to government-guaranteed mortgages between 2006 and 2009 for both servicemembers and non-service members. Conventional mortgages were about 60 percent of loans with first-time homebuying service members in 2006 and 2007, but declined to 13 percent by 2016, while with non-service members it fell from almost 90 percent before 2008 to 41 percent in 2009, and the combined share of FHA and USDA mortgages increased accordingly.

Read the full report here [2]