A recent headline at About.com caught my attention: "Why VA Home Buyers Have a Hard Time."
The short piece from homebuying/selling guide Elizabeth Weintraub raises an important issue. It also presents an opportunity to address some myths and misconceptions about this increasingly important home loan program. (Full disclosure: I've written for Elizabeth at About.com, and she actually links to an article of mine in the post.)
The gist is this: Home sellers are snubbing VA borrowers in some parts of the country, making it difficult for qualified veterans to use their hard-earned home loan benefits.
"Some sellers and their agents think they can do much better than a buyer with a VA loan, so they'll either not offer that type of financing option in the terms for sale or they will pass over that VA offer for a conventional or even an FHA buyer," she wrote. "It's not fair that VA buyers get penalized for trying to buy a home. Haven't our nation's veterans and active duty military been through enough?"
But the problem isn't so much that VA borrowers get penalized. It's more that lingering misconceptions often keep sellers and agents alike from giving military homebuyers a fair shake. The simple reality is this long-cherished home loan program presents new opportunities for both and expands the pool of potential purchasers to include a demographic that's long led the nation in homeownership rates.
Sellers in some parts of the country are starting to regain their footing. Home prices are rising and the housing market is heating up. After a few years of easy pickings, some homebuyers are again facing bidding wars with competing offers beyond the asking price. As sellers get choosier, some most certainly decide to exclude VA financing from the types they'll accept.
Sometimes it's a seller's concern about paperwork or slow-moving bureaucracy. Other times it's an agent's warnings about the VA appraisal process or closing costs. But many times the fears don't match up with facts on the ground.
Let's look at a few common culprits:
VA Turn Times
Most VA loans close in 30 to 45 days. This isn't what some agents may remember as the VA loan program of yesteryear, with everything done via the mail. There aren't mountains of red tape.
The VA appraisal process is two-pronged and involves both the valuation and a broad assessment of certain property conditions, known as the Minimum Property Requirements, or MPRs. On average VA appraisals are coming back in just under 10 days nationwide, although the wait may be longer in more remote parts of the country. True, the MPRs can absolutely pose a hurdle if the property is a fixer-upper or is in need of repair. In those cases, it may not make a lot of sense to consider VA financing; the FHA 203k program may be an alternative. This is an area where a listing agent who knows the VA program can make a big difference.
The VA's no-down-payment benefit has helped millions of veterans secure home financing since World War II. But that incredible opportunity doesn't mean lenders just give away these loans. VA borrowers still need to meet credit, debt and income requirements. In fact, no other loan product on the market, including prime loans, has had a lower foreclosure rate over the last five years. Loan preapproval isn't a guarantee no matter the loan type, but VA borrowers aren't as a group a risky proposition.
VA Closing Costs
The VA does limit what closing costs veterans can pay. The cost of a pest inspection is a common example. But that doesn't mean sellers are required to cover all closing costs in every VA transaction. Borrowers in competitive markets will undoubtedly hear from a realtor or a lender that they may need to come to the closing table prepared to cover some expenses. The average VA purchase loan last year was about $215,000, so don't assume a military borrower won't be able to put some skin in the game if necessary.
Good Sense for SellersHome sellers hold all the cards when it comes to deciding from whom they'll entertain purchase offers. They're under no obligation to open the door for prospective VA borrowers. But it certainly makes sense on a few fronts:
- Why not cast as wide a net as possible? It's not like sellers are required to accept any offer they receive.
- The VA program is booming, and that's in large part because this demographic is hungry for homeownership but often finds it tough to qualify for conventional financing. Other times they simply want to save on a down payment.
- VA borrowers have proudly served our country. They raised their hands and stood up to safeguard our freedom. Seems like the least we can do is give them the opportunity to make a strong offer to purchase your home.
This post originally appeared at VA Loans Insider.
Chris Birk is director of communications for the VA Mortgage Center, which specializes in VA loans for veterans and active duty service members.