The VA owns many homes on the market; you just may not realize it. Any veteran who secured VA mortgage financing and defaulted on their loan payments ends up losing the home in foreclosure. The VA then takes possession of the home because they guaranteed the loan for the funding bank. Now the VA wants to get rid of the home. When they put it on the market, they offer a VA Vendee Loan. This financing goes through the Department of Veterans Affairs and works similarly to a VA loan, but it is not a true VA loan.
Civilians are Eligible
VA loans are loans for veterans. Even veterans have to meet certain requirements in order to obtain the financing, though. For example, they have to have a specific amount of time served and have an honorable discharge in order to qualify. Once they have eligibility, they have to qualify financially for the loan, like anyone else would have to do. The VA Vendee Loan, however, is for veterans and civilians. You do not have to prove any time in service in order to qualify. However, you get the benefits that the veterans get when they take out a VA loan.
No Down Payment
Perhaps the largest benefit of the VA Vendee Loan is the lack of need for a down payment. If you plan to live in the property as owner-occupied, you do not need a down payment. If you purchase the home as an investment property, though, you will have to put 5% of the purchase price down. You may also have to show proof of your experience at managing properties in order to qualify.
Credit Scores are Not the Only Factor
Many loan programs are credit score driven. If you don’t have a high enough credit score to qualify for the program, you cannot be eligible. The VA Vendee Loan is not credit score driven. Rather, the VA looks at the big picture regarding your finances. They want to see that you can afford the loan, not that you have a credit score that shows past history. The VA looks at your income compared to your debts to ensure that you can afford the payments and that you have enough disposable income at the end of the month. This ensures the VA that your daily needs are cared for without struggle. This is one of the reasons the VA has one of the lowest default rates out of any other program.
Closing Costs can be Wrapped Into the Loan
Closing costs are often the difficult part of purchasing any home. In fact, they are often slightly higher than average for the VA Vendee Loan. Luckily, the program does allow you to wrap the costs into the loan. You are able to increase your loan amount by as much as 2 percent in order to cover these costs. This makes it easier to afford the home and have money left over to fix the home up, if need be.
Buying the Property As-Is
Something important to keep in mind is that you are buying a repossessed home. This means that someone lost their home and may or may not have been very nice to it. You purchase the home as-is – the seller (the VA) is not going to make any changes to the home. In addition, an appraisal is not needed for this loan, as it does not matter. You should do the necessary legwork to determine if the home is worth the price you are about to pay. If you take out a loan and end up upside down on the value, it could turn into a real financial drain for you. This is especially true if you end up dumping a lot of money into the home to make it livable. You can check the recent sales in the area for homes that are similar to the home you wish to purchase to see if the price you are about to bid is near what the other homes sold for recently.
Refinancing the VA Vendee Loan
Once you own the home for a while and have some equity in it, you might want to refinance. Whether it is to take money out of the equity or to lower the interest rate, you have the option to do so. In past years, there was a prepayment penalty tied to this loan, keeping borrowers in the VA loan for a much longer time. Today, the prepayment penalty no longer exists – you are free to refinance with any program. Keep in mind, though, you cannot secure another VA loan unless you are a veteran. The access to the VA program was provided to you because you took a home off the hands of the VA. Once you refinance, though, you have to take out a different loan unless you have VA entitlement. Your options include all available loan types including FHA and conventional.
The VA Vendee Loan offers borrowers a great chance at purchasing a house, likely at a discount, with no down payment. You get the benefits of a VA loan without being a veteran. The need for no down payment and great interest rates are definitely perks that you don’t get with very many other loan programs.
You should be careful about the house you purchase, though. Make sure you do your research on the area including historical values to see how the area fared through the years. Because you will not need an appraisal, you take a big risk in the condition of the home. If you don’t have assets to use to fix the home up, you could find yourself living in a home that is not in the best condition. If you plan to use the home as an investment home, be ready to make repairs to make it livable for your tenants. Either way, the program is a great way to buy a home you want to live in at a discount or to start your venture into investment property ownership.
