It was 1944. The world was still at war, and the American economy had not yet recovered from the Great Depression. The Department of Labor presented then President Roosevelt with a grim prediction—returning G.I.s would return to record unemployment. The nation was facing another depression hard on the heels of the first. With the input of the American Legion, Congress swiftly drafted and approved legislation and the Servicemember’s Readjustment Act hit President Roosevelt’s desk on June 22, 1944. He signed the act into law, creating opportunities for the training, education, employment, and housing of veterans of a war that was not yet over. This would come to be known by most as the G.I. Bill.;

Initially, VA home loans were restricted to veterans of World War II and there was a five-year window in which they could use their benefit. The maximum loan term was twenty years, and the maximum guarantee was $2,000 or 50% of the loan, whichever was less. This was adequate in 1944, but as prices rose, the act was amended in 1945 to extend coverage to $4,000 and the window to apply from five to ten years. Additional amendments in later decades extended the term to thirty years and coverage to the surviving spouses of veterans.

In 1952, Congress moved to include veterans of the ongoing Korean War, and post-Korean War veterans were included in 1966, during the Cold War. The VA funding fee was introduced as a percentage of the loan charged to the borrower at closing to help offset costs to the taxpayer in case of default.

The Veterans Housing Act of 1970 eliminated the expiration date on the benefit. Veterans who had not been able to finance a home within a few years of their initial service were able to claim their benefit. Amendments to that act in 1974 introduced the VA refinance loan and allowed veterans to reclaim their benefit after the sale of their property and payoff of the previous loan. Many more were able to refinance for better terms or purchase another home. Service members recently returned from Vietnam to the end of the housing boom of the early seventies took advantage of these benefits with an eye toward building long-term wealth.

The 1980s ushered in significant changes to the loan program. In 1982, the VA Funding Fee Waiver was introduced for some disabled veterans. This was a significant savings at closing, opening homeownership to another underserved demographic. The Interest Rate Reduction Refinance Loan (known as “Earl”) was introduced. Appraisal standards were set. And the occupancy rule was updated to allow a spouse to occupy the home while the servicemember was on active duty.

Changes to the program in the 1990s focused on additional demographics who had served: Native American veterans and National Guard reservists. In 1992, National Guard reservists with at least six years of honorable service by October of 1999 were made eligible for the program. Two years later, eligibility was extended to National Guard reservists who were discharged due to disability and the spouses of deceased reservists. A study conducted jointly with the Department of the Interior in 1990 on Native American participation in the VA loan program led to a pilot program a to fund VA home loans on trust lands to Native American veterans. A change to the Native American Veteran Direct Loan program in 1996 allowed the VA to make loans to eligible veterans, reducing interest rates.

At the beginning of the twenty-first century, changes to the program included increased eligibility of disabled vets for specially adapted homes and an increase of the VA loan limit in high-cost areas. Housing costs increased by an average of 7.5% in a single year due to low interest rates. This made homes unaffordable for service members, especially in the West, where the average increase was closer to 16%.

Unfortunately, a combination of factors led to a housing market crash and record foreclosures in 2008 and beyond. The administration of then-President George W. Bush commissioned a report from the Secretary of the VA on how the foreclosure crisis affected veterans and servicemembers. The purpose was to determine what could be done through the home loan guaranty program to prevent foreclosures. Despite the hardships and turmoil of the housing market at that time, in 2013, the VA funded over 600,000 new loans and officially funded its 20 millionth home loan to the spouse of a deceased veteran.

The Protecting Affordable Mortgages for Veterans Act of 2019 put in place safeguards for veterans refinancing their homes, requiring that lenders demonstrate a “material benefit” to the borrower. That same year, funding fees were eliminated for eligible recipients of the Purple Heart.

During the 2020s a focus on updating the program to reflect the realities of the 21^st century added the Space Force to the list of eligible branches of the U.S. military. Lenders are also now allowed to consider energy cost savings as residual income.

From its original purpose to establish housing and education for veterans of the Second World War, to providing disabled veterans grants to modify their homes with smart home technology (the Specially Adapted Housing and Special Housing Adaptation programs), the VA home loan program has made millions of veterans and their spouses home owners in an ever-evolving market. The nation would not have recovered from World War II without it and has prospered because of it.

Questions about VA Loans? Ask one of our Real Estate Loan Specialists by calling 503-588-0211, option 4 or schedule a call here.

Written by: Elena Christian

Read more mortgage posts:
How Much Do You Know About Home Mortgages?
The Steps to Preparing to Buy Your First home – And Why it Matters in the End
Mortgage Insurance: The Best Thing Since Sliced Bread?