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Competitive housing market presents challenges for buyers using VA mortgages

A house key lies on a table next to a military patch shaped like an American flag.

Veterans counting on using a mortgage backed by the Veterans Administration to purchase a home this year may run into obstacles.

VA loans enable military service members and veterans to purchase a home with no down payment, no mortgage insurance and no early payoff penalty. But, the loans come with strict inspection and appraisal requirements to protect veterans from substandard housing purchases.

With high demand for homes and low inventory, it's not uncommon for sellers to receive multiple offers, often over their asking price. They may decide to go with an offer being funded with a loan that has easier standards or choose to sell a buyer willing to waive a mortgage contingency entirely because they're using cash.

Massachusetts real estate professional Sandi LaCasse has seen chipped paint stand between a veteran and a home purchase – and that was before Covid-19 tipped the real estate market in sellers' favor.

“When they see that VA loan, it’s a deterrent,” said LaCasse, a Jack Conway & Co. "Military on The Move" real estate specialist. “Sellers are getting (offers with) no contingencies, waiving home inspections and waiving appraisals."

Sellers don't want to have to fix things that a non-VA appraiser might not have a problem with, she said. If a deal falls through, other bidders may be locked into a deal on a different property and the owners might have to put their home back on the market.

“Chipping paint or loose railings, or things like that – for the homeowner that’s selling, they don’t want to fix that,” she said. “There’s cash out there, or a conventional loan, and some are waiving a home inspection and it’s a no-brainer.”

On Cape Cod, where LaCasse works, she has seen homes receive five to 20 offers on the same day they're listed, sometimes at $50,000 to $100,000 over the listing price. Nationwide, nearly half of homes on the market in April sold in less than a week, according to Zillow. About 75% of homes sold in less than a month.

Ed Guynes, a Coldwell Banker Wallace & Wallace real estate agent, said housing stock is low and people are "stepping over each other" to buy homes in East Tennessee, putting buyers using more stringent VA loans at a disadvantage.

A recent listing for a new build that Guynes worked on received multiple offers, including one of $40,000 in cash over the appraised value of the home. It also included an offer from a veteran using a VA home loan.

“Of those 11 offers, the one from the veteran was not considered nearly as significant as the others,” he said. “It just wasn’t as strong.”

Sellers are looking at all aspects of the contract, how much people are putting down and how much is being borrowed, Guynes said.

“What occurs more and more is an awful lot of cash coming in from out of state and other places," Guynes said. "That cash becomes king, and there are fewer inspections and sellers don’t have to have an appraisal.”

How to make it work with a VA home loan

For buyers using VA home loans in a competitive market, patience and preparation are key. It's the opposite of "hurry up and wait," a concept familiar to military veterans and service members. Prepare to act fast, and then be patient until it's time to strike.

Specifically, buyers need to have a clear picture of what cash they can offer. To make the transaction easier, buyers should have current proof of income and pre-approval for a mortgage before they make an offer. Guynes said offering the seller proof of other accounts such as retirement, savings and other income can help.

“We’re looking for those edges for everybody,” he said.

Contingency purchases are a challenge. LaCasse, on Cape Cod, said buyers are better off selling their current home before purchasing another.

Buyers and sellers can work together to handle repairs needed to meet VA loan standards, she said, recommending buyers get to know their loan officers and have a way to contact them quickly after-hours.

An after-hours conversation between a VA loan officer and a home seller about work needed on a home helped close the deal for one of her veteran homebuyers.

“One of the things that we knew was going to come up was mildew on the vinyl siding, and some peeling paint,” LaCasse said. “So we had a VA-licensed painter come in.”

Both Guynes and LaCasse suggested finding people who will advocate for veterans, from real estate agents to mortgage loan officers and even staffers from the local VA office. In nearly every community there are people who will step up to help veterans navigate housing, they said.

“These people are giving a lot and sacrificing for our country,” LaCasse said, “so it’s important for us to facilitate the rights they’ve earned, to dig a little deeper and work a little harder to make their housing dreams come true.”

Finally, LaCasse said, it is OK to mention military service in a real estate “love letter" to the sellers to make your offer stand out. That's the missive buyers sometimes write describing who they are and why they want to buy the property, aimed at tugging at the owner's heartstrings.

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