My buyer has a VA home loan: Is that good or bad?
Your home is on the market, and you receive an offer. Yippee! But your would-be buyer has a VA loan lined up. Should you be worried?
The short answer is “no.” It’s true VA loans were once harder to close — but that’s ancient history. Today, you’re likely to have roughly the same issues with a buyer who has this sort of mortgage as any other. And VA’s flexible guidelines may be the only reason your buyer can purchase your home.
What are VA loans?
If you’re not close to the military, you may not even know what a VA loan is. The VA home loan is an earned benefit for military members and veterans. It allows buyers to finance homes with no down payment or mortgage insurance.
VA mortgages are attractive to mortgage lenders because the loans are backed by the federal government. The lender won’t lose money if the buyer defaults.
These are arguably the best mortgages out there for borrowers. Mortgage data tracker Ellie Mae reports mortgage statistics nationally. And, in its November 2018 Origination Insight Report (the latest available as of this writing), it found that VA loans had the lowest mortgage rates. Yes, even requiring zero down, VA borrowers paid lower rates than FHA and conventional borrowers.
But how are they for sellers?
Busted myth: VA loans fail to close more often
The myth is that offers involving VA homes loans are less likely to close than others. Supposedly, there are so many slips twixt offer and closing that many transactions fail.
But that’s simply not true. In that Ellie Mae report from November 2018, VA loans closed slightly more frequently than average.
You can make sure that your buyer is serious and qualified by requiring a mortgage pre-approval (not pre-qualification) letter before accepting an offer.
The reality: numbers
For all purchases, according to Ellie Mae, 74.3 percent of VA loans closed, compared to 74.1 percent of all mortgages. Conventional (non-government did slightly better than VA, with a 75.2 percent closure rate.
In short, VA mortgages will close at a high rate and are less likely than the average loan to fail to close.
Busted myth: It takes forever for VA loans to close
This myth concerns the time between offer and closing. Some believe that the VA’s bureaucracy operates ridiculously slowly.
And, as with some other of these myths, there may have been a time when that was true. But it’s in the past. In most cases, the lender is allowed to make the underwriting decisions, fund the loan, and then send it to the VA for insuring.
Your lender matters
Some lenders have what’s called “nonsupervised automatic authority” to complete VA loans from start to finish. They can usually close faster because they don’t have to kick your loan upstairs for decisions. They may be called “delegated” or “direct” VA lenders.
Other lenders don’t have the authority to close loans on their own. Usually, they have not completed enough VA home loans or don’t have a high enough net worth to be delegated. In that case, decisions can take longer because they must go through the VA Home Loan Center.
The reality: evidence
For proof, we can turn once again to Ellie Mae’s report. It reveals that it does take longer to close on a VA loan. But only two days longer on average.
In November 2018, it took on average 50 days to close on a VA loan and 48 for all others.
Busted myth: VA appraisals are low and slow
The people who show up to establish property values are home appraisers. They aren’t VA home appraisers. Chances are, they appraise for all sorts of mortgages.
And they’re not going to (or certainly shouldn’t) undervalue your home just because your buyer has a VA loan. Your property’s fair market value is its fair market value, regardless of the mortgage.
Reality: no longer slow
There was a time when some appraisers made VA loans a low priority. That was because they used to get paid less for those than other types of mortgages.
But then the VA upped their fees. So appraisers now tend to prioritize all loans equally.
It may be that this partly explains why appraisals came to be perceived as low. Mightn’t you feel grumpy and ungenerous if you were being paid less than the going rate for your work?
VA appraisal MPRs (Minimum Property Requirements)
When your appraiser turns up, he or she will have a longer checklist than for non-VA loans. That’s because the VA sets minimum standards for the homes its borrowers buy.
The goal of these MPRs is to help veterans and service-members avoid places that are unsafe, unlivable or a threat to health.
Providing your home conforms to the so-called Three S’s (safe, structurally sound and sanitary), you should have few issues. And, if you’ve prepared it so it’s move-in ready, you’ll likely have even fewer.
Busted myth: You’ll have to pay all closing costs if your buyer has a VA loan
You don’t have to pay anyone’s closing costs, whether or not your buyer has a VA loan. And the only exception to that is if that buyer has a VA loan and turns up at the negotiating table with his or her service M4 carbine.
Seriously, the type of mortgage should have zero impact on your negotiations. Both parties want the best deal they can get.
Sources of the myth
Okay, it may be true that those with VA loans are more likely to ask you to cover some or all of their closing costs. That happens for two main reasons:
- They may have limited financial resources — Because they don’t have to make a down payment, they may be buying on a shoestring. Indeed, some may be buying while making no out-of-pocket payments at all
- The VA forbids its applicants from paying certain closing costs (tax fees, courier/postage costs, application fees ...) But most of the time, these are wrapped into the lender’s origination fee, and VA buyers are allowed to pay an origination fee.
- The VA allows sellers to pay up to 4 percent in buyer’s costs if they choose to — say, instead of lowering the price. But most programs allow seller concessions, and none of them require you to pay these
It matters very little if you choose to pay the buyer’s costs or reduce your price by the same amount as part of the negotiations. but it might make it easier for the buyers to complete the deal if you can cover some or all of their costs. And, if you live in one of those areas where sellers traditionally pay the buyer’s closing costs, this isn’t even an issue.
You don’t have to do anything. So be creative. Just negotiate the best deal you can get. And, if that’s not good enough, walk away.
Some sellers are skeptical of a loan that seems to good to be true — a 100 percent loan. But it’s an earned benefit to those who serve our country. In 2018, one skeptic wrote on a forum:
“A few days ago we received an offer on our house from a VA loan buyer. Not really knowing much about these types of loans, the offer seemed ... suspicious. We were offered $1,000 under asking price with a request for a whopping $10,000 in closing costs. We were told they would be putting down only $1,000.
“Ok, so I read up a whole lot about these loans, and I’m not liking what I’m reading as the seller. One thing that is particularly worrisome is the whole VA-approved appraiser process, and how those appraisals often come in low. We aren’t under contract yet. They have not yet responded to our latest counter. It’s possible they won’t agree. But, if they do, I’m a little bit worried, even though I’ve got the utmost confidence in the house (we’ve done lots of work to it!).”