Tips for purchasing a home with a va loan
We have decades of experience working with active duty, retired, and veterans who use their VA loan entitlement to purchase a home. Our loan experience includes brokering hundreds of VA purchase and refinance loans throughout California.
As Realtors and licensed real estate agents, we represent Marines and Sailors stationed at Marine Corps Base (MCB) Camp Pendleton, Marine Corps Air Station (MCAS) Miramar, Navy Base San Diego, and North Island Naval Air Station. In the event you are stationed at or relocating to Camp Pendleton, Miramar, or a SoCal navy base, we would be honored to be your veteran real estate agent.
In the current market where multiple offers are common, we’ve developed several techniques to help get our VA offers accepted:
1) We obtain a fully underwritten loan approval before actively shopping for homes. Once we find a desirable home, this strategy enables us to attach the approval to our offers to clearly demonstrate that our buyers are motivated and fully qualified for the purchase.
2) By obtaining a loan approval from a direct lender before shopping begins, we can aggressively but safely shorten the due diligence periods for the appraisal and loan approval. From a seller’s perspective, this flexibility strengthens our offer because we can reduce the purchase contract’s allowable cancellation timeframe and can close quicker than most competing offers.
3) While the VA loan does not require a down payment, there are significant closing costs involved. To limit the buyer’s cash required to close, many agents try to stack the buyer’s closing costs into the offer price by including a significant seller credit with the initial offer. This can reduce the net closing costs to zero, which would make it a VA No No (no down payment, no closing costs) loan.
However, by stacking the closing costs, the home will need to appraise at a higher value compared to a similar net offer (i.e., a lower offer price that doesn’t request a seller credit for closing costs). A low appraisal is a leading cause of deals failing apart, so listing agents and sellers are often wary of accepting offers that require a higher appraisal than competing offers. Stacking closing costs can also disadvantage an offer because sellers may think the buyer is not strong since they are asking for help with closing costs.
4) A better solution to stacking closing cost is using a lender credit to cover some (or all) of the buyer’s closing costs. As a mortgage broker, we can offer a competitive interest rate that includes a lender paid credit that reduces our buyer’s out of pocket cost to close. Credit unions and most commercial banks do not have that flexibility.
Alternatively, when a loan origination fee is not charged, VA allows buyers to pay certain fees that otherwise must be paid by the seller. With this strategy, we avoid the problems associated with stacking closing cost by not charging loan origination fees. In sum, our borrowers can pay their own closing costs, thereby eliminating the need to obtain a seller credit toward closing costs.
5) All VA purchase loans require a clear Wood Pest Inspection Report before closing. This means any active termite or dry rot infestation must be treated and any wood damage repaired before the sale is completed.
In the current market we normally negotiate who pays for the treatment repairs after the wood pest inspection report is provided by the seller; the report is commonly ordered after an offer is accepted and not before a home is listed. An initial offer that asks the seller to pay unknown costs may be at a disadvantage compared to an offer that doesn’t request the seller to pay for a clear termite report and clearance. Be aware, conventional and FHA loans do not require a clear termite to close.
Once the termite report is provided, we’ll ask the seller to pay for the wood treatment and repairs along with other repairs arising from the separate home inspection report.
Importantly, we won’t be forced to cancel if the seller refuses to cover all of termite repairs because our VA lenders allow the buyer to pay for wood repairs and treatment. In other words, if the treatment and wood repair costs are reasonable and all other concerns are satisfied, we can move forward and close. Most commercial banks and credit unions require the seller to pay termite repair costs, so they offer less negotiating flexibility.
6) While a down payment is not required to purchase with a VA loan, there are advantages to putting at least 5% down payment.
First, it lowers the VA funding fee. For example, assuming a $700,000 purchase, the subsequent (second or third) use VA funding fee factor is 3.6%. That works out to $25,200 and is almost always financed. However, with 5% down, the funding fee is 1.65% which is $10,972. Therefore, with a $35,000 down payment, the funding fee is reduced by $14,228.
In sum, if resources are available to make a down payment, the lower funding fee factor effectively subsidizes a significant portion of the down payment.
Second, when a seller is looking at multiple offers, many listing agents will sort them by the apparent strength of each offer. Consequently, when a VA buyer plans to make a down payment, the offer may appear stronger than an otherwise identical VA offer with no down payment. And, when a down payment is made when it is not required, we can spin that to reflect buyer strength and motivation.