VA Loans are BAD!! "Really?? are YOU Sure about thAT?"

I am a Real Estate agent in Orlando, Fl and there are many times that I overhear a conversation between the seller and their agent that goes something like this: "I don't know. It seems like they are asking too much in assistance and I don't know why I have to give them money for closing costs. Do we even know if they have money for their down payment? It sounds like they don't have the money. Why are they even looking to buy? Should we hold out for another offer?"

This very conversation happened this week between one of our agents and her seller and as soon as I realized what they were talking about, I could not keep it in much longer and was trying to hand signal the agent to tell her what I would say. She is a very experienced agent and I'm sure she knew what to say but I could not hold it in. Yes, I am biased on this as I am a US Navy Veteran and I have used my VA loan several times to buy homes. I think it is a great loan and am saddened and befuddled when I hear someone bad mouthing it.

What is a VA loan?

A VA loan is a loan program offered where the VA guarantees the loan for any qualifying Veteran, active duty service member, or surviving spouse.

The VA does not actually loan the money out, private lenders do. The VA just guarantees those lenders they will get paid back should there be a default.

The VA defines several conditions and terms the private lender must comply with to get this guarantee. So to the lender, this is attractive because their investment is guaranteed.

Unfortunately, VA loans tend to get a bad rap but in fact it is a great loan package for several reasons.

First lets talk about all the negatives I hear. P.S. Most of these I have heard from the seller of a home or inexperienced real estate agents.

1. "VA loans are for the cash strapped. The buyers do not have the necessary cash required to buy a home! Why should I take their offer seriously?"

This is not True. VA loans do not require a down payment. This is entirely optional and offered as a benefit and thank you for the veteran. One could put a down payment if they wanted to but its not needed. The VA does charge a funding fee to the buyer but the buyer can wrap these costs into the loan.

2. Why is the VA loan buyer asking me to cover the closing costs? Why can't they get closing costs from their lender or family? Why do I have to take the hit?

This is a negotiating point that can occur with any sale regardless of it being cash, or financed transaction. Other items that could be negotiated are sales price, repairs, terms of contract, etc.

Its important to note that in some cases the buyer could get a lender credit to help cover the closing costs.

3. "I, as a seller, have to jump through hoops to get a VA loan to closing". "Won't VA be more strict on repairs? Will they ask me to take care of minor issues just to close?"

Just like any other financed deal there is an inspection period and a appraisal period.

The inspection period is to confirm the condition of the home and to ensure there are no hidden surprises to the buyer. Repairs could be requested.

In the appraisal period the VA appraiser will ensure the property's value is at or above the sale price of the home. The VA Appraiser will also make sure the home does not have major issues. If they see a major repair could be needed, they could define a contingency for the seller to repair an item of concern. Typically these are major items that the inspection would have caught too. In example, a leaking roof or items that would make the home unsafe to live in, broken windows panes, missing door, etc. would be issues an appraiser might require to be repaired. These are items most buyers would want to be repaired too regardless of the loan program.

4. "VA loans take longer to close than any other loan."

VA loans typically take about 45 days this is also very similar to the time FHA loans take to close. In some case it could be shorter or longer depending on the circumstances.

5. "Why do I have to pay for their WDO Inspection?"

In many, but not all states, the VA may require the seller is required to pay to the termite inspection or WDO (wood destroying organism). this is usually somewhere between $60 to $100 dollars. The VA just wants to make sure the veteran is getting a home without major issues.

Some fact on VA loans

  • The VA loan must be used for a primary residence. It cannot be used for an investment.
  • Just because you have used your VA loan before does not mean you cannot use it again. Eligibility can be regained once you settle your debt or have entitlement determined. (Confirm entitlement with your lender).
  • There is no PMI (private mortgage insurance).
  • You can prepay the loan at any time.
  • This is really a guarantee. The loan is not made by the VA it is made by a private lender that has to comply with VA guidelines and the VA will guarantee the loan up to $417K. This amount is higher in some counties in the US (check VA site). The 417K limit is not the loan limit but the guarantee limit…there's a difference.

So as you can see a VA Loan is not a bad loan.

It is a loan that is government back and it has some unique benefits to thank the veteran. Please do not discount it. Embrace it. it is a GREAT loan. I have personally used it several times for my homes as I have moved.

I have also closed numerous deals with VA loans and look forward to closing many more.

"We remember those who were called upon to give all a person can give, and we remember those who were prepared to make that sacrifice if it were demanded of them in the line of duty, though it never was. Most of all, we remember the devotion and gallantry with which all of them ennobled their nation as they became champions of a noble cause." -- Ronald Reagan
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