In many areas of the country, the real estate markets have experienced inventory shortages, especially in major metropolitan areas. The seller, in many cases, will have several competing offers to choose from; in addition, it can be difficult for the veteran buyer to find a homeowner who will accept an offer using VA financing. Based on previous issues from veteran buyers, several strategies will be illustrated to make your VA offer as competitive as other types of funding, such as a Conventional or FHA offer. You may want to discuss your options with your loan officer to increase your chances of accepting your offer.
There are usually five main areas of concern:
1) Closing Costs
2) Misunderstanding of Mandatory Fees
3) VA Appraisal vs. Conventional Appraisal or FHA Appraisal
4) An Offer With More Money Looks More Attractive To A Seller
5) VA Offer Requires a Termite Clearance
These five issues will be further elaborated on in this article. Understanding these five common areas of misconception will most likely increase your chances of achieving an accepted offer.
Many veterans need help with their closing costs. In a seller’s market, rather than asking a seller to help pay your closing costs, it would behoove you to have your lender increase your interest rate and request a lender credit to cover the closing costs. Regarding additional fees, many agents misunderstand that a seller would be responsible for mandatory fees.
This group of fees includes escrow, processing, and underwriting. The VA guidelines state that these fees are a seller’s responsibility when the lender charges a 1-point loan origination (which is rare in today’s lending environment).
This concern needs to be addressed so that all parties can understand the VA guideline. The VA appraisal has been commonly perceived as stricter than a Conventional or FHA appraisal. The most significant misinterpretation is that a VA appraiser may request more repairs on the subject property. Conventional, FHA or VA loan appraisals are all using similar standards due to the stricter federal guidelines in today’s lending world.
Many sellers believe a Conventional offer with a 20% down payment appears to be stronger than a VA loan with no down payment. The request with the highest down payment is believed to have a higher probability of closing. Suppose both buyers have been pre-approved by an experienced loan officer, and the borrower’s information has been pre-approved by Fannie Mae’s underwriting software, Desktop Underwriting. In that case, they both have the same probability of closing.
The only area where the VA loan may have a slight disadvantage is that the VA requires a termite report and clearance, but Conventional and FHA loans do not. The VA guidelines allow you to pay for repairs, but not the information. You can offer to pay for the repairs if the information is available and you know the costs. If the repairs are expensive and the seller elects to decline the repairs, it might be a house that you need to pass on.
by Randy Nathan