Since the pandemic began, veterans and service members have been utilizing Department of Veterans Affairs home loans at historically high rates.

Uncertainty around the pandemic has caused major shifts in the housing market. Dropping prices and legislation that loosened restrictions on VA home loans have both contributed to a nationwide boom in troops and veterans using their benefits.

That’s making an impact in Hawaii, historically an expensive housing market. In Honolulu, VA loans from April 1 to June 30 were up 206% from the same time last year. That marks the largest increase for a major metro 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 been tracking the data. With the end of the fiscal year, he expects the numbers will be even higher.

A VA loan is a mortgage for military veterans, service members and the spouses of deceased service members. The VA itself doesn’t give out loans, but issues guidelines and guarantees loans that qualify under the program.

The loans can be used both for purchasing and refinancing homes. In Honolulu VA loans for refinancing have increased 403% so far from last year.

“Pretty much every veteran is refinancing right now because they’d be stupid not to,” said Elias Halvorson, a Honolulu VA loan specialist and Air Force veteran, noting the current low interest rates for loans.

New Legislation

Every county in the U.S. has a conforming loan limit, which is a cap on the size of a loan that the federal government will guarantee. Loans above this limit are known as “jumbo loans.”

Until recently, if a home price was over the county loan limit the buyer had to make a 25% down payment. 

“Some of these people could afford to buy a home, were employed and making enough money, but may not have had enough cash on hand to make that down payment,” Birk said.

In 2019 the conforming loan limit for a single family unit in Honolulu was $726,525. The Blue Water Navy Vietnam Veterans Act of 2019, which took effect at the start of 2020, eliminated home loan limits.

With the new legislation, VA Loans don’t require mortgage insurance or down payments even if a loan is over the county limit. That’s a big deal in Hawaii, one of the most expensive housing markets in the nation.

“Those two things make taking out a loan much more possible,” said Halvorson.

Last year housing prices for a family home on Oahu hit a record high. But according to Zillow, Honolulu home values have declined 1.8% over the past year and Zillow predicts they will fall 3.4% within the next year.

Halvorson noted that when it comes to housing 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 mean thousands of dollars.

Halvorson said he encounters a wide mixture of people utilizing benefits. Sometimes it’s service members stationed in Hawaii who buy a home either as an investment or hoping to lay down roots. Others are retirees deciding to make a fresh start in the islands.

A notable group is veterans from Hawaii using their benefits to return home. Hawaii and Pacific Island territories have historically high recruitment rates. In a study examining 2003 recruiting data, Native Hawaiians and Pacific Islanders were overrepresented in the U.S. Army by 249% compared with other ethnic groups.

But many veterans don’t know that they qualify for these loans.

“A lot of it is education,” Halvorson said, explaining that the military often doesn’t tell veterans all the benefits they actually qualify for as they transition to civilian life. “It’s the best loan out there,” he added.

Coming Home

For years rising rents and home prices, along with the high cost of living, have driven many from the islands.

Joining the military has been one way for young people to both leave and get a steady paycheck. Now for some veterans, their benefits offer a way back home.

“I’ve definitely come across plenty of folks who come home and want to make an investment in a place for themselves and their ohana,” said Halvorson.

According to VA data from 2016, California had the highest number of Pacific Islander veterans followed by Hawaii, Pacific Island territories and Texas. For Asian American veterans the top 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 are up 22% from last year, while millennial veteran homeowner refinances are up 659%.

Millennials by and large have struggled to enter the housing market.

“Younger service members are able to just because of this opportunity that they’ve earned,” Birk said.

But Birk cautioned that just because a veteran qualifies for a loan that doesn’t mean they should take it. Not all veterans have a stable enough financial or life situation to commit to a home.

Millennial veterans have faced unique challenges re-integrating into civilian life.

Even before the pandemic, unemployment was on the rise for post-9/11 veterans, making the idea of buying a home out of reach. New legislation eliminated VA loan limits, but not the responsibility to repay the loans.

While millennials are taking out VA loans in the highest numbers, each generation is seeing notable increases. Generation X’s loan utilization is up 215% in Honolulu and Baby Boomers are up 211% in terms of total loan utilization.

Purchases by World War II and Korean War-era veterans have gone down 17% as those generations age, but that demographic still saw a boom in refinancing with an increase of 354%.

The pandemic has changed the loan process considerably with virtual home tours, inspections and appraisals. Even so Birk noted that the average loan in June closed in 47 days.

“Despite these disparate issues impacting the process, it’s full steam ahead for military and veteran buyers,” said Birk.