For years, there has been a consistent bias against VA loans that is based on outdated myths and inaccurate information. Despite being competitive in the market, veterans qualifying for this kind of financing have faced challenges in having their offers considered and accepted.
However, there is no denying that VA financing has benefits for both buyers and sellers and that realtors and sellers should give VA loan offers just as much weight as others. We’ve gathered the key myths serving as barriers towards considering VA financing and provided accurate information to help qualifying veterans land their dream house.
First things first, let’s talk about cash offers versus loan offers.
Objectively, an approved loan is no different to cash because sellers receive their funds in cash. Although cash may close quickly, it doesn’t necessarily mean sellers are ready to move out immediately, and delays can happen. Furthermore, many cash offers still come with value and inspection contingencies which make them appear less attractive. Making it clear that contingencies are not a priority will make a VA loan-backed offer more enticing.
This is why it’s so important to examine seller motivations during the buying process. Is the seller worried about timeframe to close? Or is the main motivation cash in the seller’s pocket? If it’s the latter, a VA loan will still equate to cash in their pocket and, thereby, can be an attractive option.
Another myth is that sellers may need to pay closing costs with a VA loan. Let’s make this clear: If done correctly, buyers with a VA loan will not need the seller to pay the closing costs. Most buyers may be unaware the days of VA no-no loans are gone. Current stats show that almost 40% of VA loans have down payments, and almost all have the cash to close and pay closing costs, so buyers and realtors don’t need to worry on that end.
Veteran buyers can pay more than the appraised value as long as they have the cash to do so. Both sellers and agents also need to understand the difference between closing costs and origination charges. While the borrower can always pay closing costs, origination charges are different. Those fees are not covered as closing costs in the VA Lenders Handbook and are limited to 1%. However, most loans will never reach 1% in origination charges, so that’s another concern that does not actually apply.
When it comes to appraisals, the reality is that VA appraisals have multiple opportunities that other appraisals do not necessarily have. Understanding the advantages and communicating them to realtors and sellers will put you in a better position to have your offer seriously considered.
For example, take Tidewater. It offers the benefit of providing the appraiser with comps to support purchase price - something that no other appraisal can offer. Similarly, the presence of ROV is also an advantage. No other appraisal offers the option to have VA review and possibly change the value for VA purposes. That benefit can also be a significant advantage to make your case as a buyer.
In fact, even with the current VA Amendatory Clause, veterans can pay more for a home, so there aren’t any barriers there. Also, unlike HUD, the VA appraisal stays with the borrower. Comparatively, if an appraisal comes low in a HUD transaction, sellers will need to stick to that value for the next six months if the sale falls through, making it a gamble on their end.
Lastly, there is always an Escape Clause. It provides an out for the borrower in case the home’s value comes out lower than the purchase price.
If that happens, the clause presents three solutions:
This highlights how veterans can pay more for the home if needed, even with the current VA Amendatory Clause. In fact, we’ve seen that some veterans are opting to sign an additional addendum guaranteeing to pay up to the purchase price regardless of value. It’s one way of increasing confidence with realtors and sellers.
However, it doesn’t always work so it’s important to be cautious. The purchase price could end up being excessive if the appraisal comes in too low. Instead, consider setting a limit on how much you’re willing to pay above the appraised to remain competitive without pricing yourself out.
Also, remember if you’re not in an immediate hurry, there is always the option to lock in a reasonable home purchase in new construction. Most new home subdivisions are not having bidding wars so buyers are able to secure an offer and use their VA home loan benefit.
Ultimately, sellers and buyers have a mutual interest in ensuring a fast sale and cash in hand. If you’re having difficulty with getting offers accepted by sellers and their agents, it’s not worth the time. Skip the hassle, and look for new homes where there is a better chance of offers being accepted with minimal pushback. Understanding the different aspects of VA loans and how you can make an offer that stands out can help overcome realtor bias. To learn more about VA loans and how we can help, please get in touch today.