California Veterans can sometimes have a difficult time getting their offers to buy a home accepted by home sellers. As a matter of fact, it happens quite a bit. But by being proactive, there are things a California VA Lender and the Veterans real estate agent can do that will help increase the odd’s of getting an accepted offer. First, it’s important to understand why sellers and the real estate agents listing their homes tend to shy away from VA offers.
The Myths/Reasons Why Sellers and Agents Don’t Accept Offers with VA Financing
- Sellers and/or their agents fear than since a buyer using VA financing will not need a down payment then this somehow makes their offer to purchase more of a risk. A risk of falling out or getting declined.
- Sellers and/or their agents believe that they will be required to pay closing costs for the California Veteran buying their home.
- Sellers and/or their agents believe that the VA appraisal process is more difficult and more conservative than an appraisal for other types of financing.
- Sellers and/or their agents believe that it takes longer to close a VA loan than other types of financing.
None of this is true. Let’s first take a look at the fact a VA buyer does not need a down payment to buy a home (up to the county’s 100% Financing Limit). The fact that there is no down payment has nothing to do with whether the loan gets approved or not. As a matter of fact, VA loan underwriting guidelines are more lenient than Conventional guidelines when it comes to debt to income ratios, credit, prior derogatory credit (bankruptcy and/or foreclosure). Also, as with any home buyer, the California Veteran should already have a PreApproval from a California VA Lender prior to even making the offer. With the PreApproval, the lender has already reviewed the borrowers credit, income and assets, just like any other type of financing. There are many cases where the Veteran does have plenty of savings in the bank, but when the VA loan program allows for 100% financing and has no monthly mortgage insurance, why bother with down payment? The fact that many VA loans are closed where the Veteran has solid reserves in the bank after closing may be one of the reasons why VA loans have the lowest default rate of any type of financing.
Seller not Required to Pay Veterans Closing Costs
The seller is not “required” to pay any closing costs for a California Veteran. This does get confusing because there are “non-allowable” costs which the Veteran can’t pay. But actually, in many cases they can. VA does allow the Veteran to pay up to 1% of the purchase price in “non-allowable” costs. The primary “non-allowable’s” are the lender “junk fees” and the escrow fee. For most homes priced over $300,000, the 1%, or in this case $3,000 tolerance, is more than enough for the buyer to cover the non-allowable’s. It is also fairly common with VA financing for the lender to offer a “lender credit” which will cover some or all of the non-allowable’s AND closing costs, resulting in a “VA NO NO“, where the Veteran buys a home with no money out of pocket. And again, this doesn’t mean the seller had to pay any of the buyers costs. Also, the seller is not even required to pay for repairs, if needed.
To make sure the seller is clear on the fact that they don’t need to pay closing costs for the VA buyer, the following wording should be included in the purchase contract:
“Seller not responsible for any buyer closing costs or prepaid expenses for this VA loan. All “non-allowable” closing costs will be paid by a combination of the buyer and lender”.
VA Appraisal Process is Easy
The VA appraisal process may have seemed somewhat arduous compared to a Conventional loan appraisal prior to 2009. But in 2009, the Home Value Code of Conduct, or HVCC, went into effect for Conventional appraisals. Lenders could no longer choose their favorite appraiser or even communicate with the appraiser. HVCC is actually more strict than the VA appraisal process. Also, VA appraisers tend to be very experienced since it’s not easy to get on the VA appraiser list. Sales comparable’s are reviewed in the same manner as any other type of appraisal. If there are safety issues with the property, like loose wires hanging from an outlet or a hole in the floor, that will be called out by a VA appraiser and would need to be repaired. There are rarely repairs required, and if there are they tend to be for items that ANY buyer with ANY type of financing would want fixed. And the VA buyer is allowed to pay for the repairs if the seller is adamant about not paying for repairs.
VA Loans Close in 30 Days or Less
It does not take longer to close a VA loan than other types of financing. As mentioned above, in most cases the California Veteran should already have been PreApproved for the VA loan prior to even making the offer. The lender is just waiting for an accepted off to get the ball rolling on the appraisal. Closing within 20 to 30 days should not be a problem if the loan is being handled by a California lender specializing in VA loans.
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.