Coming Home without a Home: The VA Mortgage Crisis

The men and women who bravely serve our country in the armed forces have returned home from the wars in Iraq and Afghanistan looking for a new start. These courageous veterans are told that they can get a VA loan for a mortgage to jump start their next phase in life. However, in many cases, especially with attempts to purchase a condominium or townhouse, this is not true.

 In those cases, very often the veteran is told that the condominium association or the association which owns the townhouse complex, does not accept VA mortgages.  This article will take a closer look at this troublesome trend while providing an overview of the VA mortgage program. It will also provide ideas for how to address this problem in the future.

Current VA Mortgage Guidelines

The current VA mortgage system was designed with good intentions.  The program began in 1944 following World War II in order to help veterans and the post-war economy (www.vahomeloans.com).

The program was innovative for that time period, and though it has adapted over the decades, the core component to help veterans obtain housing has remained
consistent. The main goal is to provide mortgage credit to veterans which
otherwise would not be able to obtain a loan (www.vahomeloans.com).

Over the years, the law has been modified several times to respond to changes in the economy and the housing market. In the 1980s and 1990s, as home values
increased, the VA mortgage program had to adapt in order to put veterans in
adequate housing. They had to address a big issue: the down payment.

The Down Payment Issue

In response to dealing with the rising costs of housing coupled with the increase in
personal credit needed to obtain a mortgage loan, the government adapted the VA mortgage program so that no down payment was required (www.valoancenter.com).

The VA guarantees a portion of the mortgage so the lender is protected against losses if the borrower fails to make the payments and defaults (www.valoancenter.com).  This guarantee by the VA also has a dual purpose because it acts as credit to qualify veterans who may have
no credit or a limited credit history (www.valoancenter.com) .

However, those veterans with no credit or limited credit history must show 12 months of reliable payments on at least three of the following lines: phone, utility,
auto insurance, auto loan, and prior housing rental (www.valoancenter.com) .

The VA mortgage program applies to traditional homes, townhouses, and condominiums. The qualifications to apply for a VA mortgage are: at least 90 days of active duty service time, it could be less than 90 days if discharge was due to a
service connected disability (www.valoancenter.com) . The VA mortgage program is also available to other military service members who meet particular requirements (www.valoancenter.com) .

Condo/Townhouse Living vs.
Traditional Home

I have relatives in real estate that actively work with veterans, and the condominium or townhouse options are better for veterans, in most cases. The reasons that those types of housing options are better than the traditional home are asfollows:

1. Low maintenance
2. No yard work required (especially for
   disabled veterans)
3. Potentially tighter knit communities
   to provide a support system during their transition back into civilian life

However, as my relatives in the real estate industry have told me, it is increasingly difficult to get the Home Owners Associations (HOA) of many condominium and townhouse properties (or projects) to even consider a VA mortgage. The root source of this issue is a bit complicated because each state has different laws and regulations governing VA/FHA mortgage loans and their requirements for those loans being applied to condo/townhouse projects.

First, the condominium/ townhouse project must meet VA/FHA
required guidelines to be an approved site within their system (www.hud.gov Chapter 16). Next, only 30% of the total units in a condo/townhouse project can be VA/FHA mortgage holders (www.bankrate.com) .

Furthermore, half of the units in the condo/townhouse project
must be sold before the FHA will approve any mortgages (www.bankrate.com) . Last, the owners of a condo/townhouse must occupy 50% of the total units in the project in order for FHA/VA to approve mortgages (www.bankrate.com) .

The Backlash and the
“Sandy Effect”

In New Jersey, where I reside and where I have relatives in the real estate industry, there exists a backlash where the project is VA/FHA approved and the occupancy levels are high, yet the HOA will not accept a VA mortgage. Some other real esate experts within the industry are writing in their online blogs: that the backlash against the VA/FHA mortgage is because the economic recession caused a shortfall in the association fees being collected by the HOA at the respective projects.

This shortfall, coupled with the perception that the VA mortgage can be a risk has caused some resistance to the VA mortgage within the condo/townhouse HOAs. Moreover, in New Jersey, especially in the areas hardest hit by Hurricane Sandy, you have the “Sandy Effect” on the housing market.

In Monmouth and Ocean counties in New Jersey, you already have a shortage of housing rental inventory, and the supply of available housing is further decimated because potentially available units are storm damaged and cannot be occupied. This has caused the rental market in these areas to skyrocket (www.app.com ). This housing inventory shortage has caused veterans to have fewer housing choices as well.

The Future

If the material in this article is concerning to you, I urge you to get involved to improve the future for our veterans returning home without a home to live in. This action could include: calling or writing to your Congressional representatives, mobilize your local community and local American Legion and other veterans groups to work together to change this troubling trend, and mobilizing an effort in your state to get new regulations for VA mortgages passed.

In the end, our veterans served us and protected our homeland. They deserve a home of their own to help them make the difficult transition into life after the war. We need to make that possibility a reality.