Home sellers in Orange County who don’t accept offers from VA buyers may be losing money. Not taking all offers seriously is a bad strategy in any situation, but avoiding offers from a Veteran using VA financing is just bad all the way around. There are several reasons why there is a perception that VA buyers may not make it to the closing table, but there are plenty of reasons why VA buyers actually do close, and most likely at a higher close rate than other types of loans.
Myths about the VA Loan Program
There are several myths about the VA loan program which seem to get in the way of common sense thinking. Below are a few of those myth’s.
- Myth 1 – The seller is required to pay closing costs for the VA buyer. This is not true. While there are certain closing costs that are known as “non-allowables”, the VA buyer is allowed in many cases to pay those costs. In the old days, which for this article we’ll say is back in the 90’s, it was common for the seller to pay closing costs for the VA buyer. At the very least they would pay the “non-allowable costs”. The Non-Allowables include the lender admin fees (underwriting, processing, etc), escrow closing, notary, and a few other smaller fees. However, if Veteran is allowed to pay up to 1% of the loan amount in “non-allowables” if there is not a 1% Loan Origination Fee. In most cases lenders do not charge a loan origination fee on VA loans. Many lenders don’t even charge a lender fee. This means there is only the escrow closing fee, which in most cases is less than 1% of the loan amount. Even better, many lenders offer VA loan options where there is a lender credit going back to the VA buyer that will cover all closing costs and prepaid expenses. Other than typical termite clearance fees, which are common on any real estate transaction, a seller shouldn’t have to pay any closing costs for the VA buyer unless they want to.
- Myth 2 – The VA appraisal process is stringent and the valuation is conservative. This also is not true. While the VA appraisal process is a little different than for Conventional financing, the valuation process is no different than any other type of appraisal. As a matter of fact, most VA appraisers are also Conventional loan and FHA appraisers. They will be looking at the same sales comparables and making the same adjustments no matter what type of appraisal they are doing. A VA appraiser will be looking for safety issues with the property (FHA does this as well). So if there are holes in the floor, loose wires hanging from sockets, broken windows, or peeling lead based paint, then the VA appraiser may call that out and require repairs. However, most buyers using any type of financing will have a Home Inspection Report completed, which would be calling out the same repairs. This should not be a concern.
- Myth 3 – The VA buyer has no “skin in the game”, making their offer weak. This couldn’t be further from the truth. An interesting fact about the VA loan program is that it has the lowest default rate of any type of loan program, even though there is no down payment required in most cases. Veterans have character and have proven that they will stay within their budget and meet their obligations.In most cases, the VA buyer should have been Prequalified or PreApproved before making the offer on the home. The seller is going to get paid whether the Veteran buys the home with all cash or uses 100% financing. (I recently had a Veteran in Orange County make an offer on a home in the $600,000 price range. It would have been a 30 day escrow. The seller ignored the offer and accepted an offer with Conventional financing that was $10,000 under the VA buyers offer. Thus, this article.)
There was recently a great article in the LA Times titled “Sellers who ignore VA buyers are missing out” which makes several strong points about why sellers should take an offer from a VA buyer seriously.
The Truth About VA Loans in Orange County, CA
The truth is that the VA loan program in Orange County is very strong. The 2015 VA loan limit for Orange County is $625,500. This means an Orange County Veteran can purchase a home with no down payment up to that amount. But it is also possible to get a Jumbo VA Loan, which is what happens when a Veteran purchases a home with VA financing that is higher than the VA loan limit for 100% financing. Many local Orange County, CA VA lenders will lend as high as $1,500,000 on a VA loan. There is a down payment required, but not much. The down payment is equal to 25% of the difference between the $625,500 loan limit and the purchase price. For example, if a Veteran is buying a home for $825,500 (and even $200,000 above the limit) then the down payment would be $50,000 and the VA loan would be $775,500. That works out to only 6% down payment for the Veteran on an $825,500 price. Along with the other benefits to the Veteran of having no monthly mortgage insurance, competitive 30 year fixed rates, flexible qualifying when it comes to credit and debt to income ratios,this makes the VA loan program an excellent option for both the VA buyer and the seller.
The first step for the VA Buyer is to talk to an Orange County VA loan specialist who can prepare custom loan scenarios based on the Veterans long and short term financial goals. A VA specialist should be able to educate the buyer on how the numbers work and how it will fit in to their budget. By the time a VA Buyer is ready to make an offer on a home they should already know all they need to know about the financing.
Authored by Tim Storm, a California Mortgage Loan Officer MLO 223456 – Please contact my office at the Emery Financial. Direct line at 949-640-3102. www.OrangeCountyVALoans.com. I prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.