VA loans have long been frowned upon when part of an offer on a home. But, should you accept offers with VA Loan financing? The days of a VA Home Loan being difficult to close are long gone and, in truth, you could find yourself with similar issues with conventional loans.
The short answer is, "YES", by all means, accept that offer! But it's still important to understand why you shouldn't be worried about accepting an offer from a VA loan buyer. It turns out it can be a positive thing for both buyer and home seller alike...
What are VA loans?
VA loans are a loan program backed by the U.S. Department of Veterans Affairs offered to qualified borrowers meeting certain eligibility and service requirements. Active service military, veterans, and some surviving spouses can take advantage of this loan benefit.
VA provides a guarantee for a portion of the home loan which enables private lenders like banks and mortgage companies to provide more favorable terms.
Some of these favorable terms can include 0% down payments, Zero annual private mortgage insurance requirements, zero loan limits, and competitive mortgage rates. VA borrowers are still required to pay a VA Funding Fee which is a one-time payment on the loan to lower the cost of the loan on taxpayers.
photo by Rodnae Productions
Are VA loans bad for sellers?
Some of the myths and misconceptions swirling around about VA-Backed Home Loans is that accepting VA financing will involve additional red tape and a slower closing process than conventional loans. But, just ask any real estate agent and they'll tell you just as many issues can crop up with conventional loans as with VA loans.
VA home loan programs are a great opportunity for qualified homebuyers to achieve homeownership and shouldn't be looked down upon by sellers. A VA loan offer can benefit a seller for several reasons which we'll go over next.
How can a home seller benefit from an offer with a VA loan?
1. Zero Downpayment means more flexibility
It's understandable to be a little weary about an offer without a downpayment attached to it. In other situations, this could mean a home buyer has shaky finances, bad credit, or both. However, with a VA loan, it could simply mean the buyer is taking full advantage of their VA benefit of 0% down. This could certainly give them more cash on hand and more flexibility when negotiations begin.
VA loan borrowers still have financial responsibilities with these types of loans that require financial commitments. For example, the VA Funding Fee, so sellers shouldn't worry about a deal falling through due to financing.
2. VA loan pre-approvals are just as strong
While pre-approvals are an absolute must in today's real estate market. A pre-approval for a VA loan has been vetted just as stringently as a conventional one. Keep in mind that the loan still comes from private lenders who have verified their entire financial picture including annual income, credit score, and employment as part of their loan application.
Their loan officer isn't going to let them buy a home above their price range thereby putting their mortgage payments out of reach, etc.
photo by Rodnae Productions
3. You're supporting our military men and women
What better way to show your support for a buyer's military service than to consider an offer that could mean the first home for a veteran or active-duty service member? Likewise, it could mean military families settling down after a return from deployment or removing the stress from their shoulders of a military-ordered relocation?
4. VA Loans close at similar rates to conventional loans
Some of the most recent numbers report a 75% closing rate for VA-Backed loan applicants compared to 76.9% on conventional mortgages and 75.1% for FHA loans. And these numbers include folks who take longer or go with another lender, so 75% is a high completion rate comparatively.
5. VA appraisals aren't lower or slower than conventional
Because the VA guarantees a portion of these loans, the appraisal process is more stringent, sure. The appraiser is VA-approved and follows the VA's minimum property requirements. After all, they're making sure the home is safe for the buyer and covering their bases that the loan isn't for more than the fair market value of the home. It's no different than the conventional loan process.
This doesn't mean the appraisal process will take longer than normal, cost the seller more in repairs, or be more difficult for the loan to be approved. It's the same as any other appraisal - if the home is in good condition and comparable to similar properties it should pass appraisal.
photo by Rodnae Productions
6. You're not required to pay the closing costs on a VA Loan
While it's true there are certain closing costs a VA loan applicant isn't allowed to pay for, the mortgage company is typically the one who covers those. In markets more favorable to buyers in general, closing costs are typically negotiated into the offer.
However, we're not in a buyers' market at the moment. Buyers with a VA loan have no more sway than a civilian buyer to negotiate loan closing costs in a seller's market. You can certainly consider the request as part of negotiations, but you're under no obligation.
photo by Rodnae Productions
Conclusion
As a military veteran and a Military Relocation Professional, I can tell you from experience that VA offers have gotten a bad rap. I've personally overseen many, many home sales and home purchases involving VA loans that were no different than a civilian using another type of loan.
The success rate of my military clients' home transactions has been excellent. Zero down payments have had very little to do with their finances and in fact, they've been highly qualified.
Why limit your buyer pool of offers in a competitive market by ignoring offers involving VA loans? You're not obligated to accept any offers and if you're looking for the best purchase price for your home, it makes sense to put "All the money on the table."
If you're considering purchasing a home using a VA Loan or have more questions about selling a home and VA Loans, get in touch today!
