Always deny VA buyers?

Question

I am the co-broker for a multifaceted brokerage with over 50 agents. We specialize in working with investors and provide in-house lending, including VA loans. We are constantly sending out educational trainings and making sure our agents are current in the market, especially as we are bringing on more talented agents.

Today, I had one of our agent state they had a buyer, full priced offer but was VA. They said they were concerned. They asked for Pros and Cons of working with a VA buyer.

Coming from a military family, I feel its imperative to give opportunities to our military personnel. I started giving them our pros and cons and then thought I would ask the same question here to see if we can get more information for our rockstar agents.

Vanessa A Martin · Answer

As a Military spouse and as a Military Relocation Specialist, there is so much misinformation about the VA loan and its process. Yes, you should always use a lender that is very knowledgeable in the VA loans and all that they offer.

You can buy investment property up to 4 units as long as the veteran lives in one. You can always later refinance out of the VA Loan.

You can use a VA loan multiple times, again provided you qualify. The process is simple for the service member to find out their eligibility.

The VA offers a Rehab loan, similar to the FHA203 with the same low rates.

As a listing agent, you should never discourage a seller from not accepting the VA loan. One, it will limit the number of people that will look at their property and it is no different than any other loan product. The appraisal process is the same process and the same amount of time as say an FHA loan.

So again I would speak to an experienced lender very familiar with the VA process. You can visit the VA.gov website to get more information as well as receive updates about what is available to help our Military community.

Vanessa A Martin · Answer

@Charlie MacPherson I respect your opinion on the matter, however not sure what policies are in your State? I have worked with VA buyers and have never been asked to pay for the inspections of any kind nor have the sellers?. You are assuming that every Veteran/Active Duty buyer is coming to the table with NO money to put down, which is also not fair. Also as a Military spouse, I find that very disconcerting to deliberately discriminate against our service members because of the type of loan they choose to use! Again I say that is why I am an advocate to help find our service members quality housing! My job is to make sure my sellers and buyers are educated about what is available to them and they can choose which route to go.

Jeff Shumway · Answer

As an Air Force Veteran, I have to chime in here on the VA loan. As others have mentioned there is a LOT of misinformation out there about the VA loan.

One of the most prevalent myths is the VA appraisal. Back in the day, the VA appraisal used to be the strictest out of all the loan programs. However the VA has relaxed and the appraisal is no more difficult than your average appraisal. The home just can't have holes in the ceiling or chipping paint. If the home has these issues, then the sellers will have issues with other loan programs as well not just VA.

Others have mentioned about VA appraisals coming in low but a couple bipartisan senators have actually taken action on this. You can read the article below but these senators are petitioning the VA to be more lenient with the appraised value of the home. On top of this, the VA allows for two opportunities to contest the appraisal if the value comes in low. There is the Tidewater Initiative where the appraiser gives us the heads up the value will be low and gives us 48 hours to submit comps to reconsider and a typically Reconsideration of Value can be submitted with additional comps if the appraisal still doesn't come in at value. I've been pretty successful in getting the appraiser to increase the value the few times I've had to do this.

https://www.feinstein.senate.g...

The VA loan is also the easiest loan to qualify for. You can exceed the debt to income ratio so long as the veteran has enough residual income whereas any other loan program is a hard stop if the DTI is exceeded. The VA is very lenient on credit as well. Additionally, with not having PMI and having the lowest rates of any loan program, it's even easier for the Veteran to qualify.

The VA loan also has the lowest default rate, so the idea that the Veteran is not qualified because they are coming in with zero down is simply not true. In many cases, the Veteran can come in with a down payment but just prefers not to (wouldn't we all??). Obviously it frees up money to buy new furniture etc. I would also argue that the VA Funding Fee is no worse than any mortgage insurance on any other type of loan. This fee is also reduced if the Veteran does put up a down payment.

Charlie MacPherson · Answer

@Vanessa A Martin This is a topic that really used to set my hair on fire when I was a Realtor.  VA supposedly wants to protect the veteran, right?

In doing so, they have the most stringent property inspection requirements of any of the big 3 government-backed home loans (FHA, VA, USDA - excluding FHA 203K).  In some areas they require a wood destroying insect report (termites, powder post beetles, etc) and the veteran is not allowed to pay for it.  That means that part of the inspection is paid for by the Realtor (I always refused) or the seller.

Put yourself in the seller's position.  You're selling a house and you have two nearly identical offers on a $300,000 home.

1. Conventional lending with 20% down.  The appraisal is done to make sure that the lender is protected in the event of a default and that all major systems are working - heat/ac, plumbing, electric, septic.  The buyer has $60,000 skin in the game, which he stands to lose if he defaults.  He can walk away, but it's going to hurt.

2. VA loan. Same appraisal, but far more strict for condition of the property - and a thousand reasons it can fail. A tiny bit of peeling paint, uneven sidewalk, overflow/relief pipe from the water heater not 18" off the floor, wobbly handrails, cracked pane of glass and the list goes on.  At best, the seller has to agree to do the repairs.  And pay for the termite inspection too.

Add to that the occasional appraiser who thinks it's his patriotic duty to hammer the price down for the veteran.  I have seen first hand my listing under contract with rock-solid comps at $389,000.  Appraisal came back at $315,000 (!!!!!).  I triggered the Tidewater clause and got the appraiser to raise his number to $345,000.  The desperate seller took it and got screwed, leaving $44,000 on the table.

The VA buyer has nearly ZERO skin in the game, aside of maybe $500 in EMD.  If he sees a house he likes better the day before closing, he can walk away and lose his minuscule EMD - and the seller, who was counting on those funds from the sale to buy his next home is absolutely screwed.

As a former Realtor with a fiduciary duty to my seller, I have to advise them of the risks of VA loans.  As much as I absolutely HATE the result, it ends up being a much lower risk to the seller to take the offer with the conventional loan.  And now, the veteran gets screwed.

Seeing a pattern here?  It seems that with VA lending, somebody can easily end up getting screwed and in the end, I think that the way the program is run hurts veterans in the end.  The road to hell really is paved with good intentions.

The VA needs to back off on the crazy inspections.  Run it like a conventional loan.  Appraise for value and functionality of major systems and leave it at that.  Require at least some skin in the game (1%?), give the vet a great interest rate and cover closing costs and you'll have a program that actually helps the vets it was meant to help.

Russell Brazil · Answer

The VA loan isnt that great unless you are a disabled vet, and thus have the VA funding fee waived. If the buyer has to pay the fee, and is rolling it into the loan at 0% down, they are immediately underwater on the property. Being leveraged at 101-102% LTV is simply high risk.

I feel the better option is the 3% down Fannie Homeready ready loan. Of course that requires more money up front, but prevents the buyer from starting off underwater on their mortgage.

Doug Spence · Answer

About two months ago, my wife and I closed on a primary residence using the VA loan in San Diego (we're both active duty Navy). Its a super competitive market, but we were able to get our offer accepted because our lender can do a 17-day close on the VA loan. This made our offer MUCH more competitive. For those struggling to get loans accepted, I recommend finding a lender that is a VA loan expert, and can offer a fast close.

I'm happy to share my experience with any prospective VA loan buyers.

Jorge Vazquez · Answer

Disadvantages of VA loans buyers

• You May Have Less Equity in Your Home
• VA Loans Cannot be Used to Purchase Vacation Homes or Investment Properties
• Seller Resistance to VA Financing
• The Funding Fee is Higher for Subsequent Use
• Not All Lenders Offer – or Understand – VA Loans.

What's the advantage of a VA loan?

VA loans have had the lowest average 30-year fixed rate on the market.

VA interest rates are typically 0.5 to 1 percent lower than conventional interest rates. Lower rates help Veterans save every month and over the life of their loan.

Why do sellers not like VA loans?

Before it guarantees mortgages, the VA wants to ensure homes that eligible veterans buy are safe and secure and worth their sale price. Because VA appraisals may increase their repair costs, home sellers sometimes refuse to accept purchase offers backed by the agency's mortgages.

Daniel Smyth · Answer

@Nadia Daggett

The VA will inspect your property.

If they like it, do the deal!

The no down payment is a VA concern and not yours.

Get your money and invest well!

Charlie MacPherson · Answer

These are not state requirements, they're VA requirements.  When it comes to the termite inspection, VA only requires that in areas where they consider it necessary.

Always deny VA buyers?

Most Popular Reply