Foreclosure is scary and most people don’t like talking about, but in the VA loan industry, it’s something to cheer about.
VA home loans have always performed well, and there are some new numbers from the end of 2012 that get VA lenders really excited. Last quarter the VA foreclosure rate was only 2.08 percent. This number is incredible when you compare it to the subprime loans foreclosure rate of 9.28 percent and when you realize that 9 in 10 VA buyers put $0 down.
So why are these VA loans outperforming conventional loans in such an extreme way? There are a few key factors, but we want to focus on just one today. Residual Income a.k.a the Silver Bullet.
Residual income is the VA’s unique approach to measuring a buyers ability to afford a monthly payment. It’s what you have left over each month after you pay your normal revolving installments ( i.e. mortgage, car payment, etc.)
The residual income of a family that has a monthly income of $3000, a mortgage payment of $1200, and a car payment of $250, is $1550 (3000-1200-250=1550.)
Conventional loans use credit scores and debt-to-income ratios to help determine the eligibility of a potential buyer. Even though these are two great tools for measuring, residual income takes it a step farther, leading to that low 2.08 percent foreclosure rate.
VA loans look at credit scores, debt-to-income ratios, and residual income to determine a buyers eligibility for a loan. All three play an important part in the decision making process. The combination of the three is what makes VA home loans so successful. That’s why we recommend looking into a VA home loan today.