Making Sense of VA Loans
The US Department of Veterans Affairs helps Service Members, Veterans, and eligible surviving spouses become homeowners. The most popular form of assistance is in what we call a “VA Loan”. These are loans provided by private lenders like banks and mortgage companies, in which there is a portion of the loan that has been guaranteed by Veterans Affairs. Often this allows those eligible to purchase a home without having to put a downpayment or pay private mortgage insurance.
What does this mean for sellers?
When presented with an offer from a buyer using a VA loan, there are some special considerations to make. However, a lot of the information that is out there is misleading or completely false. Before worrying that a VA offer means more hassle or a longer process, let’s examine the common misconceptions a bit further:
Myth #1: Won’t VA Loans Take Longer to Close?
A while back, VA loans gained a reputation for taking longer than conventional loans due to extra paperwork and documentation needed by the underwriters and mortgage companies that originated the loans. However, in today’s highly digital age, most of those processes have been streamlined by the availability of this information on the web. Initially, buyers looking to obtain their VA Loan Eligibility certificate would have to wait a few weeks, but now buyers can obtain their certificates directly through their lender or via their online benefits portal. Furthermore, the underwriting process has become significantly more efficient (with all loan types) in the last 5 years, to the point that the average time it takes to close a loan is under 45 days.
Myth #2: The Appraisal Process is a Nightmare
Appraisals done on VA loans DO have some extra guidelines that the appraiser needs to follow, however, that doesn’t necessarily mean you’re headed for disaster. VA appraisal guidelines require the appraiser to check for what’s known as the “Minimum Property Requirement” or MPR. The appraiser is instructed to look for signs of defective construction, and to especially assess the property for three main concerns: Is is it safe? Is it structurally sound? Is it sanitary? Properties need to be free from safety hazards, but those hazards are open to interpretation by the appraiser.
If your home is in varying states of disrepair, you may need to be concerned about a VA offer and it’s potential to close. Glaring issues like leaking pipes, exposed wiring or live insects or insect damage are definitely going to be flagged by the appraiser. This should not be a surprise, as it would be flagged on any appraisal, however, the VA will not close on that loan unless the items have been repaired. Many agents that work with VA buyers regularly already know the types of things to look out for when looking at potential homes with their buyers. As a seller, if you have significant issues with the structural integrity of your home, or have multiple items in disrepair, your home will likely not pass the VA appraisal process.
Myth #3: No Downpayment Means Bad Credit
This is probably the most unfortunate of the misconceptions out there. The men and women that are eligible for these special loan programs all sacrificed to help protect us and our country in one way or another. Giving them the opportunity to purchase a home with little to no downpayment is just one small way our country can show our gratitude. The benefit that the VA bestows upon them is not a crutch for those with bad credit though. Each borrower must qualify by meeting certain credit, debt and income requirements, and according to data regarding default rates, VA borrowers are less likely to default on their loans.
Myth #4: Who Pays for Closing Costs
Every loan will come with fees. These range from fees for services like lien searches, credit checks, application fees all the way to origination points to purchase a lower interest rate. When looking at a VA loan, you may hear about the “VA Non-Allowable” fees. These are fees that the VA will not allow the borrower to pay for in the transaction. Some of these fees include attorney fees charged by the lender, fees for appraisals requested by the lender and commissions to the mortgage broker or real estate broker. Now, just because the borrower cannot pay for these, does NOT mean that the seller MUST. Often these fees are covered by the lender directly or sometimes are excluded altogether, depending on the loan. If you receive a VA offer that asks for seller concessions (also know as a seller credit) that amount is likely being used to cover these costs. VA borrowers are not the only subset of borrowers to ask for concessions, so the point to remember here is that you don’t necessarily pay more out of your pocket with a VA loan. Your agent will advise you on the breakdown of fees when they present the offer to you and you will get an idea of just how much (if any) of these costs are being asked of you. Something to note, there is a limit to what the VA will allow for seller concessions. The seller may not pay more than 4% of the purchase price toward VA non-allowables.
The Bottom Line
When it comes to selling your home, you want to make sure you understand the pros and cons for each offer you receive before you choose to accept it. Making sure that you know the difference between a conventional loan versus a VA loan is just one piece of the puzzle. There are many parts to a negotiation and while it may all come down to that bottom line, there is much more at stake than money. Different offers could mean different hurdles such as how many days until closing, whether they are asking for concessions or repairs and so much more. By working with a trusted real estate professional like the REALTORS with the Carpenter Kessel Homeselling Team, you can rest easy knowing that you have professionals with decades of experience to guide you. Our advice is to review each offer independently and remember that these myths we covered should not be what stops you from giving veterans, active service members and their families a chance at homeownership.