By Doug Goelz, Mortgage Services
In our market, Veterans Administration loans can be tough to use when buying a home because sellers often do not want to accept offers contingent upon VA loan financing. I recently had some buyers, though, who used a VA loan to buy their new home, and it was a reminder of how good VA loans can be in the right situation: they have competitive rates, high dollar amounts, and allow 0% down. Here are some myths about VA loans which keep sellers from accepting offers with VA loans, and even keep veterans themselves from considering VA loans.
VA loan amounts are not high enough to buy a home in our market. Myth! In the Bay Area, VA loans can up to about $1,000,000. Of course, the borrower(s) have to have enough income to support the payments, but veterans with good incomes can get $1,000,000 financing with 0% down!
VA loans take too long to close. Myth! By preparing in advance of making on offer, buyers with a VA loan can close their deal in 30 days or less.
VA appraisals are tougher than regular appraisals. Myth! The appraisal for a VA loan will uses the same sources of comparable sales as any other appraisal. Nothing is “built in” to a VA appraisal that makes is necessarily more conservative than any other appraisal.
VA loans require mortgage insurance. Myth! Even with less than 20% down, mortgage insurance is not required with VA loans.
There are some things about VA loans which differ from conventional financing, and buyers, sellers, and their agents have to be prepared to deal with these differences:
Any “Section 1” pest work has to be completed and cannot be paid for by the buyer. For many properties, especially in San Francisco, this may preclude VA loans. However, if a pest report is “clean” or has minimal work indicated, this may not be an issue.
Some closing costs (the biggest of which general is the escrow fee) cannot be paid by the buyer. This means that the price offered has to be competitive as far as the seller is concerned even if the seller has to provide a credit for some closing costs.
The VA funding fee is about 3.3% of the loan amount. The funding fee can be added to the loan amount, or can be included in the closing costs paid by the buyer.
Condominium projects have to be approved for VA loans. No problem if the project is already approved, but it is costly and time consuming to get projects approved. In San Francisco, most condo projects are not approved for VA loans.
If you are a veteran, you should look into VA loans when getting your financing in order before you make an offer on a house. For many reasons, VA loans may not work in your situation, but they should at least be considered. Sellers and their agents should not dismiss VA loan financing out-of-hand, either: in many situations, financing with VA loans is no more onerous on sellers than conventional financing.
Questions? Feel free to get in touch with me at 415-730-4665 or [email protected]
