Everything you need to know about VA Loans
Most agents refuse to deal with VA Loans. While they certainly have draw backs – it really is not that different from a conventional loan. This post will highlight the most important aspects. Let’s dive in!
VA borrowers are prohibited from paying expenses such as: Termite inspections, Real Estate Broker fees, Mortgage Broker fees, prepayment penalties, FHA/HUD inspection fees to builders, attorney fees as a benefit to the lender, and Real Estate professional’s commission.
Here is an extensive list of charges/fees:
What MUST be included in the offer?
The following clause MUST be in the contract of sale to protect the VA borrow’s Ernest Money Deposit:
“It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs.”
The VA Appraisal
The VA requires a specific VA Appraisal done. THIS IS NOT AN INSPECTION! Typically, the lender/loan officer books the VA Appraisal. hHave this booked ASAP once your offer is accepted. The VA Appraisal assesses the fair market value of the property and reviews the VA’s MPR’s (minimum property requirements). It’s important to note that the VA Appraisal can take up to 14 days, sometimes longer to be performed and returned.
VA Minimum Property Requirements
It’s important to familiarize yourself with the VA Appraisal Minimum Property Requirements (MPR’s). They have strict criteria and can be viewed here: VA MPR’s. Contrarily, if the appraiser requires repairs they VA can issue waivers. If the appraisal comes back lower than the asking price – your buyer will be responsible for paying the difference. On the contrary, if the appraisal comes back higher, they have instant equity.
Some other really important aspects of the VA Loan is that seller concessions cannot exceed 4% of the property value.
What drawbacks does the VA Loan Have?
While VA loans prevent the borrower from paying certain expenses they don’t save as much as they think. The VA Funding fee is 2.3% for first time homebuyers. If your client has used the VA loan before they may pay up to 3.6%. Unfortunately, this can add up quickly. If your client receives a BHA for being active duty this may not be an issue. On the other hand, if your client has previously used a VA loan, wants to avoid the VA funding fee, and has money in the bank, a 5% down conventional loan may be a cheaper alternative.
Hopefully this article gave you everything you need to know about VA loans to get started. If you found this informative please check out my other posts.