Can vet get VA loan accepted in sellers’ market?

Can vet get VA loan accepted in sellers’ market?
Date Published: March 28, 2014

Veterans continue to be frustrated as home sellers shy away from offers because of Veterans Affairs financing.
So why is that?
First, there’s the additional fees for VA loans. There are certain fees associated with a VA loan that veterans are not allowed to pay. Those fees are referred to as “non-allowables.” They include what is called a lender tie-in fee which can run from $800-$1,500. Other non-allowable fees include escrow, notary and tax service. These fees can be as much as $3,000.
The veteran may not pay for these charges or any other fee deemed “non-allowable.” So, if the veteran can’t pay them, who can? The seller, the agents and even the lender can pay the non-allowable VA fees.
The typical method is for the seller is to provide a credit as part of the sales contract. It’s not uncommon for a seller to add the non-allowable fees to the sales price. Especially in a tight market. For example, Mr. Homeseller is asking $300,000 for his home. Mr. Veteranbuyer wants to purchase the home and wants a 3 percent credit for closing costs. Mr. Homeseller will increase the sales price by 3 percent to $309,000 and agree to a 3 percent credit to Mr. Veteranbuyer at the close of escrow. Mr. veteran gets the house, the fees get paid and Mr. Seller gets his price.
A homeseller may choose not to raise the sales price and agree to simply credit X amount toward the VA loan fees. Example, the asking price is $300,000. The veteran buyer’s non-allowable fees total $2,500. The buyer offers $295,000 and asks for a credit of $2,500. The seller may agree to credit the buyer $2,500 at close of escrow in addition to accepting a reduced sales price.
A word of caution to agents and sellers from the voice of experience. Do not, I repeat, do not reduce the sales price to cover the non-allowable fees because the buyer and buyers agent may “forget” why the price was reduced and insist that the seller pay the fees again at the close of escrow. Make sure that you include a specific credit. A credit not to exceed a specific dollar amount or percentage.
The agent representing the buyer and or the seller can contribute toward the VA closing costs in the form of a credit from their commission at closing.
The lender can offset part or all of the closing costs with a lender credit. Lenders can offer the credit to the borrower by adjusting the interest rate. Meaning if a lender pays the fee he will get it back through a higher interest rate.
Minimum property requirements such as condition and accessibility is another reason that home sellers shy away from VA loans. A clear section I and section II termite report is required for a VA loan. VA will not allow raw wood or concrete floors. All electrical and mechanical systems must be in good working order. The roof must be sound and there can be no evidence of poor workmanship or deferred maintenance such as broken windows and peeling paint.
Veterans love VA loans because no down payment is required. The VA loan program also frees military borrowers from buying private mortgage insurance (PMI). A portion of each VA loan is backed by the federal government, rendering PMI unnecessary.
Avoiding PMI can generate some serious savings. PMI fees generally range from 0.5 to 1 percent of the total loan amount on an annual basis. The average mortgage amount in February 2012 was $225,463, according to the Mortgage Bankers Association, meaning a typical homebuyer could be expected to pay from $1,127 to $2,255 in first-year PMI costs.
VA loans have relaxed credit standards as well. Most VA lenders still require only a 620 minimum credit score and the interest rates for VA loans are competitive.
Even in today’s sellers market it can be a matter of good Home $$$s
and Sense if a veteran works with a team that understands the VA
loan requirements and process.
Sue Thompson is the owner of HomeTown Realtors in Auburn. She can be reached at seesue@mac.com, or at www.homedollarsandsense.com.