In 1944, President Roosevelt enacted a culturally significant and socially valuable law which is still with us today. The Servicemen’s Readjustment Act, also referred to as the GI Bill of Rights, was designed to support servicemen returning from WWII. It focused largely on employment and housing, two of the biggest challenges for veterans.
The VA Home Loan Program was a component of this original bill. Today, it fulfills much the same purpose as it did back then. It helps returning servicemen – many of whom have no savings or investments to come back to – safely purchase homes with less rigorous mortgage requirements. While it may be seventy-five years old, the GI Bill of Rights is still considered one of the most important in American history.
This article takes a closer look at the history of the VA Home Loan Program and its impact on culture and society.
Where It All Started – 1944
After the bloodiest war in history, the US government felt it was vital to show support to servicemen trying to rejoin civilian life. While away fighting, these men had inevitably fallen behind their peers in terms of things like career opportunities and financial investments (particularly in property). They were returning to unemployment, poverty and few chances to change their situation.
Thus, Roosevelt decided to make buying homes easier for servicemen. They would not be subject to the same rigorous financial requirements as others. Instead of offering money to invest, which he feared would not be helpful in the long term, he took away many of the obstacles to ownership.
This is how a St. Louis VA Home Loan (or a VA loan in any other part of the country) works. The VA does not create or offer the mortgages. Instead, they financially back them. Just as a standard home loan requires evidence of collateral in case of default, the VA agrees to step in if the buyer cannot pay. In short, the VA puts up the collateral on behalf of the buyer. This encourages lenders to approve mortgages to servicemen because they’re less afraid of making a loss.
In 1944, the VA Home Loan assurance was capped at half the total mortgage amount or a maximum of $2,000. It might sound like a small sum today but typical property prices in the forties stood at around $9,000. To be approved and protected, home loans could not exceed a 4% interest rate cap or a twenty-year term.
There were obviously other requirements too. As the earliest version of the VA Home Loan Program was intended specifically for WWII veterans, all applicants had to provide evidence of military service between September 1940 and September 1945. The government encouraged eligible veterans to apply before 1950 as it could not guarantee receipt of the same benefits after this time.
While the scheme was well-received by policymakers and the general public, it ran into a number of problems after its initialization. For instance, as soon as house prices across the country began to rise, the $2,000 sum guaranteed by the government became less useful. There were also increasing worries about monthly payments due to the twenty-year cap on VA loan terms. Some economists expected the scheme to have a negative impact on the housing market as too many people might apply.
As a response to growing concerns, the government increased the surety amount by $4,000 and amended the maximum loan term. It also gave servicemen a period of ten years (as opposed to the original five) after leaving the army to apply for a loan. This was the biggest change and the most valuable. It enabled the VA Home Loan to become more than just a short term fix. After the forties, it began to establish itself as a respected and honored part of American culture.
Making the VA Home Loan a Permanent Fixture – Fifties, Sixties and Beyond
In early 1950, the government forged ahead with plans to significantly expand the VA Home Loan Program and make it available to more people. It amended the original bill with eight important alterations, most of which focused on extending the long term impact of the scheme’s benefits.
Firstly, the VA surety protection was increased to 60% of the total loan or $7,500 maximum.
The maximum loan term was also increased to thirty years from the previous twenty.
Perhaps one of the most important changes, from a cultural perspective, was the decision to offer VA Home Loans to widows of fallen soldiers. Even if a serviceman died in action, his spouse would still be eligible to receive the same benefits. Later, this clause was further expanded to include servicemen who had died of disabilities relating to their military work.
Congress also introduced new legislation to prevent mortgage providers from shirking the guidelines and continuing to charge servicemen at normal rates. This, essentially, enshrined the loan program in law for lenders too.
Later in the year, shortly after these amendments had been enacted, the Korean War started. It took just two years for the government to fully roll out the loan scheme to servicemen who had returned from this conflict as well. By 1966, the VA Home Loan Program was an all-encompassing system which invited any serviceman enlisted after the Korean War to apply for the same benefits as their grandfathers and fathers in some cases.
The arrival of President Nixon, in 1968, triggered further changes to the rapidly growing and expanding benefits program. By 1971, he had introduced the Veterans Housing Act, a more contemporary incarnation of the original GI Bill. For the first time, there was no deadline associated with VA home loans. Across the country, millions (almost nine million, by some accounts) of veterans rejoiced as the abolition of expiration clauses meant they were once again eligible to apply.
Nixon also made it possible for applicants to withdraw cash from their equity and use the money to settle other types of loans, pay for education fees, invest in home renovations or spend in any way that might improve their wealth in the long term. The variety of viable properties also increased as changes to the law meant veterans could now use their loans to purchase condos and mobile homes, not just traditional properties.
By 1978, the VA Home Loan Program had expanded further still to include loan investments designed to improve properties with energy efficient renovations. Improvements like solar panels were made a legitimate option for eligible property owners trying to increase resale value and double or triple their original investment.
To learn more about VA loan requirements in your area or how to apply for a St. Louis VA Home Loan, visit Veterans United Home Loans or in St. Louis, Liberty Lending.