If you are a veteran with VA financing, you probably find it a little more difficult to find a home to purchase than other buyers do. It is not that the homes are not available; it is that the sellers do not want to accept your offer. It may or may not be due to the amount of your offer – typically, it is because you have VA financing. There have been some longstanding misconceptions that our country believes regarding VA financing, making it tough for our veterans to purchase a home.
The Process Takes Too Long
Many people think the VA process takes months. The fact of the matter is any loan can take a while to close. It depends on how fast you respond to the lender when they ask for specific documents. It also depends on how complete your finance package is when you provide it to the lender. If they have to constantly come back to you and ask for paystubs, W-2s, or other documentation that you should automatically provide, it can delay the process for any program. Yes, sometimes VA loans do take a little longer, but they do not usually take an excessive amount of time.
The Appraisal Process is Tough
It is true that the appraisal process for a VA loan can be a little tougher than any other program. The VA not only requires the appraised value to equal the sales price for funding, but they also have Minimum Property Requirements every house must meet. If the house does not meet the requirements, the seller must fix the problems before the loan can close. This can end up costing the seller more money and delaying the closing even further, depending on the complexity of the issues. The requirements the VA has are not as tough as they seem, though. Basically, the VA wants to ensure the house is clean, sanitary, and ready to move into without delay. As long as the home is not a fixer-upper, it should not be an issue.
They Do Not Want to Pay Closing Costs
Another misconception many sellers have is that they will have to cover the non-allowable closing costs for the borrower. It is true that the VA limits the closing costs the borrower must pay; it does not mean the seller has to pay them. There are other options. The closing costs the buyer is allowed to pay with VA financing include the appraisal, title, credit, origination fee, recording fee, and survey. These basic fees cover a large part of the loan process, but not all of it. This leaves many fees still outstanding including underwriting, processing, and even attorney fees. Who pays these? There are several options:
- Seller – The seller is under no obligation to pay the closing fees for the buyer. However, he does have the option to increase the agreed upon sales price of the home and crediting the buyer back the amount of the closing costs. This way the buyer basically wraps the closing costs into his loan and the seller still gets the same amount of money for the home.
- Lender – The lender can also help with the closing costs by offering a credit at the closing. Of course, there must be some way the lender makes up for this credit. He does so with the interest rate. They will generally increase the rate between 0.25 and 0.5% to cover the closing costs for you.
- Borrower – There is still one way you can pay the non-allowed fees on a VA loan. The lender can charge you an origination fee, which is an allowed fee. This way the lender can wrap all of the non-allowed fees into one lump sum that does not exceed 1% of the loan amount.
Sellers Want Top Dollar for Their Home
Lastly, sellers obviously want to get the most money for their home. They do not want to accept a mediocre offer and leave others on the table. Unfortunately, for borrowers with VA financing, this can be difficult. If a bidding war begins, the veteran is often out of the running because of the appraisal issues. VA appraisals are known for their conservativeness, which means the loan would never go through during a bidding war. If you were to bid over the asking price, chances are the appraisal would never come close to the higher amount. This would leave you with the need to come up with the difference in cash or to withdraw your bid. If you can come up with the cash, then the scenario might work out, assuming there is a willing lender. But, if you cannot come up with the cash, the seller is back at square one.
A VA loan deal does not have to be a deal breaker for sellers. If they understand the process and have a home in good condition, there should not be any problems. Yes, they might have to wait a little longer for the process to complete, but that could be the case for any loan program. It really depends on the workload of the lender and the appraiser. If there are appraisal issues, you have the right to appeal the value. If the seller and his realtor do the right homework, the asking price should be a fair value for the home. You should also be prepared to come up with a way to negotiate any closing costs. If you talk with the lender ahead of time to learn what closing costs they will charge, you can negotiate them up front with the appropriate party.
Sellers should not avoid VA financing at all costs. As long as they have all of their ducks in a row, it can be a great way to sell their home. The VA has the lowest foreclosure rate amongst all loan programs, making it a great way to sell a home and have it placed in good hands.
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