For most of his life, Marrio Pearson gave little thought to being a homeowner. If the 45-year-old U.S. Army veteran thought about it at all, he found plenty of reasons why it was a bad idea. He thought he was too old to buy a house. He wasn't sure he would stay in Washington. He might take a job elsewhere. He figured being single made it too difficult.
Plus, life always seemed to get in the way. He got divorced. He got laid off. He got a new job.
On top of all that, he worried about the cost and the length of the loan.
"Three hundred thousand dollars sounds like an astronomical amount," said Pearson, a senior quality assurance engineer at a cybersecurity company. "The thought of 30 years of paying for something was very intimidating."
Pearson eventually overcame his reservations and bought a $330,000 rowhouse in Historic Anacostia in October 2016. He put down just $2,500 and financed the purchase with a VA Loan.
Using a loan from the Department of Veterans Affairs rather than a conventional or Federal Housing Administration (FHA) loan, Pearson saved money by obtaining one of the lowest interest rates on the market. He also did not have to scrape together a down payment or pay mortgage insurance.
"It turned out to be way easier than everything I had read online," Pearson said.
A VA Loan proved the most affordable way for Pearson to buy his home. Because of that affordability, a record number of veterans and service members are taking advantage of the loan program. The 740,000 VA loans last year were the most in a single year, and up more than 300,000 from three years ago. The Washington area has had a 78 percent increase in VA loans in the past four years, according to Veterans United Home Loans, the largest VA purchase lender in the country.
The low interest rate is the biggest reason many veterans and service members are using the program. VA loans have had the lowest average interest rate on the market for the past 41 months, according to Ellie Mae. As of September, the average interest rate for a 30-year fixed VA loan was 3.99 percent. It was 4.26 percent for a conventional loan.
The VA home loan benefit was part of the original GI Bill in 1944. Not only did Congress want to help veterans obtain an education, it wanted to help them buy a home.
"It gave millions of Americans who served in World War II the opportunity to build wealth and realize the dream of homeownership," said Jeff London, director of the loan guarantee service at Veterans Affairs. "A lot of historians credit the GI Bill for the economic boom, not only from the education standpoint, but also from the wealth-building and the building of America when it comes to homeownership."
Veterans have long had some of the highest rates of homeownership among all segments of society. Their homeownership rate is close to 80 percent, compared with 64 percent for the general population.
"People talk about this idea that homeownership seems to mean more to many veterans and military families," said Chris Birk, director of education at Veterans United. "Many see it as owning a piece of the American dream that they vowed to defend."
To be eligible for a VA Loan, a military member must serve 90 consecutive days on active duty during wartime, or 181 days during peacetime, or six years in the Guard or reserves. Some veterans are under the misunderstanding that they must use the benefit immediately or lose it, or that if they used it once, they can't use it again.
"In the past, many veterans believed that this is a one-time benefit," London said. "That's not the case. This is a lifetime benefit."
Besides the low interest rate, another big advantage is that a down payment is not required. As long as a veteran has his full VA Loan entitlement and remains below the loan limit, he does not have to put money down. The limit is $424,100 for most counties. In more expensive markets, it is $636,150. A veteran can borrow above that amount but would need to put money down.
Say that a veteran wants to buy an $800,000 house in Loudoun County, which is considered one of the high-cost markets. For a conventional loan, he might be required to put down 20 percent, or $160,000. But with a VA Loan, he would need to put down $41,000. He wouldn't pay mortgage insurance and would probably get a better interest rate.
Although a veteran doesn't pay mortgage insurance, he is required to pay a VA funding fee, which is typically 2.15 percent of the loan amount. Many borrowers finance the fee.
"The only real downside I see is the funding fee," said Craig Fauver, a Virginia-based real estate agent. "Putting no money down, plus adding on the funding fee, you are immediately underwater. You're starting at 102 or 103 percent of your value."
VA loans tend to work best with single-family homes in suburban or rural areas. They are more difficult to obtain in urban markets, where entry-level housing tends to be a condo or co-op. VA doesn't guarantee loans for co-ops, and condos must have VA approval.
The uptick in VA loans has come despite the program's reputation. Many veterans shied away from it because they thought it wasn't worth the hassles or headaches.
"Unfortunately, in the past, if a veteran or service member wanted to utilize the VA benefit, sometimes lenders or Realtors would steer them away from the program because there was a notion that VA is too hard to work with, there is a lot of red tape," London said. "We've spent a lot of time, effort and resources to get the word out about the program."
The biggest complaints about the program involve the appraisal process. Only VA-approved appraisers inspect the homes to make sure they meet minimum property requirements and are "safe, sound and sanitary." VA appraisers tend to have stricter standards than a typical home appraiser, and that makes buying a fixer-upper with a VA Loan almost impossible.
"I generally steer people away from fixer-uppers with a VA Loan," Fauver said.
The first house Pearson wanted failed the VA inspection because it needed too much work. When he finally found the home he bought, the closing was delayed because of the inspection.
"The longest part of the process was waiting for the VA inspector to come out and reinspect," Pearson said. "There are not that many VA inspectors."
Delays in the appraisal process are one reason VA loans take longer to close. The average closing period for a VA Loan is 46 days. It is 43 days for a conventional loan.
VA loans have come under scrutiny by the Consumer Financial Protection Bureau. From 2012 to 2016, the CFPB received more than 12,500 mortgage complaints from service members, veterans and their families. Most of them were related to refinancing.
"What some lenders have done is, they have aggressively marketed to veterans and service members," London said. "A lot of those complaints centered around those [marketing] materials. Some of those materials might have promised teaser rates, and veterans who did get those loans maybe didn't have a full understanding of the type of loan they were getting."
The idea of a no-down-payment loan brings back the horrors of the recent housing crash. About 80 percent of VA Loan borrowers do not put down money when buying a house. But less than 1 percent of VA loans were in foreclosure as of June, according to the Mortgage Bankers Association's National Delinquency Survey. VA loans have had the lowest foreclosure rate on the market for the past 18 quarters.
"There's a lot of myth and misconception surrounding the program, especially given the no-down-payment benefit," Birk said. "But it's actually emerged as a model of stability."
VA does not provide money for the loan. Unlike an FHA loan, for which the government guarantees the entire loan, VA guarantees about a quarter of the loan in most cases.
Pearson is thrilled with his new home. His mortgage payment is about $100 more than what he previously paid in rent. And best of all for the Washington Nationals season ticket holder, it is close to the stadium.
"I ended up finding a place in Southeast," he said. "It met my requirements of being able to ride my bike to the baseball stadium. It was less than a mile to a Metro station. The neighborhood had a lot of potential. The only thing I didn't get was a garage."
Pearson pays extra on his mortgage each month and rents out his basement on Airbnb.
"I'm trying not to be in debt for the rest of my life," he said.
When he finally signed the papers at closing a little more than a year ago, Pearson says, he became emotional at the thought of being a homeowner. His tears of joy continue today.
"Sometimes I go home," he said, "and I cry again, because it's my home."