The VA Home Loan Program is the most important benefit available to veterans who have served our country in the military or who are still serving. The VA Home Loan allows a veteran to buy a home with no down payment, below market interest rates and qualifying standards that are very flexible.
What’s not to like?
Well, for one thing, as many veteran home buyers have learned, sellers are often very reluctant even to consider an offer with a VA-guaranteed loan. Too often, the seller will choose an offer with conventional financing, even though they may get more cash from a sale to a veteran using a VA loan.
Why would anyone reject a VA loan home offer?
The reason for this unfortunate fact is not a lack of patriotism, but a lack of knowledge—or, more accurately, some incorrect assumptions about VA loans. Let’s look at these assumptions and see what the reality is.
- “I’ll have to pay out a lot of money in closing costs for the veteran.” It was once true that there were certain “unallowable closing costs” for the veteran borrower. Among these were the escrow fee, lender underwriting and processing, termite inspection and notary fee. Today, that guideline has been changed. The veteran can pay those formerly “unallowable” fees provided that they don’t exceed 1% of the loan amount. For a loan amount of $300,000, those fees will seldom exceed $2,000.
- “They’re going to make me do a lot of nit-picking repairs.” It is true that VA has certain standards for the condition of the property the veteran is buying. These standards involve health and safety. The appraiser will do an expanded inspection of the property, looking for items like exposed wiring, dry rot and other problem areas of the property. The appraiser’s inspection is not as extensive as the typical property inspection that all prudent buyers get when they buy a home.
- “The appraiser will probably give my property a low-ball value.” Real estate appraisers are licensed by the state. They complete an extensive training program to do their jobs. An appraisal is a systematic assessment of the value of a property, derived by comparing the subject property to others similar to it. Appraisers for VA loans are licensed by the state as are any other appraisers. The VA has a list of appraisers that they have evaluated and selected based on their experience and expertise. VA appraisers tend to have more experience than their peers. There is no evidence to indicate that VA appraisals are likely to be lower than conventional reports. In the case of an estimate of value lower than the sales price, the seller can request a “Reconsideration of Value” from the appraiser’s company.
- “It takes MONTHS to get a VA loan.” This is quite simply untrue. The VA guarantees the loan that a mortgage lender has funded. It takes no longer to get a VA loan than a conventional loan and closing can often take less than 30 days. The documentation is different (the veteran needs a Certificate of Eligibility, for example), but most of it is generated electronically and is available immediately—before the actual loan process even starts.
There are many reasons why a seller should accept an offer from a veteran. Here are some:
- Ultimately, it is easier to get a VA loan than a conventional loan, meaning the veteran buyer has the best chance of following through on his offer. The underwriting requirements for a VA loan are considerably more lenient than for a conventional loan. The lender calculates the amount of cash the veteran will have left over after meeting normal household expenses and payments on other accounts. This allows much more latitude for the lender to approve the veteran.
- Veteran buyers tend to make higher offers than conventional buyers. This means more cash in the seller’s pocket at closing.
Finally (and most importantly): THE BUYER IS A VETERAN, for crying out loud. He or she stepped up to serve, and deserves our gratitude and respect. Considering a veteran’s offer to buy with 100% VA financing is a very good—and tangible—way to say, “Thank you for your service.”