When it comes to VA or conventional loans, the choice for buyers who are veterans is often simple – VA.
VA loans require a 0% down payment, there’s no mortgage insurance, and interest rates are typically lower.
But what about a seller’s experience? When listing a home for sale, sellers will often not even consider a VA offer due to preconceived notions regarding the complications of these transactions. VA loans are incredibly difficult to get to closing, right? After all, they’re going to require all these fixes and inspections. It’s just way better not even to consider those offers.
Wrong!
“They have these perceptions that it’s going to be so much more difficult, or they require all these repairs. When, in fact, they really do not,” said Nate Davis, CEO and president of Florida Mortgage Firm.
A veteran of the U.S. Marine Corps, Davis has more than 15 years’ experience as a mortgage broker.
“In my opinion, underwriting is way more flexible on a VA loan,” he says.
Underwriting guidelines for VA loans have a higher limit on a buyer’s debt-to-income ratio (DTI), allowing buyers to come in with a little bit of a tighter budget but still qualify. Assets are also easier to source.
VA loans also require no money down, freeing up funds for buyers in the event of a change to the loan structure. To put it simply, there’s more flexibility and space for unforeseen variables.
The main difference to a seller between conventional and VA loans is a wood-destroying organism report (WDO). This is also known as a pest inspection or termite inspection. Just as it sounds, it’s an inspection checking for termites in the structure of a home.
VA may also insist that peeling paint be corrected, but otherwise, it’s similar to conventional requirements. Both conventional and VA programs require the home to be safe and inhabitable.
The VA has a favorable appraisal process, too. Appraisers have more flexibility with how they arrive at a value, and the VA offers an initiative called tidewater.
The tidewater process allows appraisers to request additional information from all parties prior to finalizing an appraisal report. If the assessed value is short of the price on the sales contract, then agents and clients on both sides of a transaction can submit additional sales information that an appraiser may not have been considering. This is another opportunity to meet the sales prices.
Tidewater is only offered by VA, whereas a similar situation with a conventional appraisal would immediately result in a restructure of the loan. This can take more time, or potentially cause the loan process to stop altogether.
Should a VA appraisal report truly come in short of a sales price, buyers often have more funds available to cover the difference due to the 0% down payment. Less money down = more funds available.
“Just because they don’t want to put it down on the house does not mean they don’t have the money,” said Davis.
Generally, most sellers should not count out a large portion of offers simply because they have ones with VA financing. The truth of the matter is that the VA loan process is comparable to the conventional process.
In fact, “Our VA loans are closing just as fast as our conventional loans,” Davis added.
With fast closing turn times and more flexibility in underwriting and appraisals, buyers with VA financing are a well-kept secret in this market. Unfortunately, this is often to both the buyer’s and seller’s detriment.
“It’s not just to help the veteran. If everyone knew this… it helps the sellers, “Davis said. “If I get more offers [as a seller], that’s typically better off for me.”