VA home loan useful, but watch for snags - Army News | News from Afghanistan & Iraq - Army Times

VA home loan useful, but watch for snags

For eligible service members and veterans, the Veterans Affairs Department’s home loan guarantee program can be a curse or blessing in today’s housing market. Among the advantages:

• It is among the few mortgage programs now available that does not require a down payment.

• In most locations, lenders will allow purchases of a home worth up to $417,000 without a down payment — and more than $1 million in some high-cost areas.

• Credit underwriting is a little easier with VA loans than with other mortgages. A buyer’s credit scores don’t have to be as high, and loans are possible with as few as six months of work history — not the minimum two years required for most mortgages.

• An inspection of the home is required to ensure it is safe and livable, which provides extra protection for first-time buyers.

But there are disadvantages:

• Not all lenders are willing to work with VA loans.

• A fee usually is wrapped into the mortgage, ranging from 1 percent to 2.75 percent of the value of the loan.

• There are limits on what fees can be charged to the buyer at closing; some sellers don’t want to be part of a sale that could force them to pay more closing costs.

• A strict home inspection and appraisal process often can make it impossible to buy a home “as is.” If the seller won’t agree to repairs, either done in advance of settlement or by putting money into an escrow account, a VA loan may not be approved.

• Many sellers and their agents believe VA loans involve more red tape than other loans.

• Generally, VA home loans are more likely to be accepted in housing markets where troops, veterans and military retirees are a sizable part of the market.

La Jolla, Calif., real estate agent Gary Giffin said a VA loan is a “viable option” in the San Diego area. “We hear about problems getting sellers and their Realtors to accept VA loan offers, but we also hear that for people who have VA loan entitlement, this represents their best chance of a purchase,” Giffin said.

Ken Bates, a Navy Reserve officer and owner of Military Home Programs Inc., a San Diego company specializing in veterans loans, said availability of home loans — which, in high-cost San Diego, can be valued at up to $697,000 without a down payment — give military buyers an edge over people with similar incomes who would have to come up with a down payment.

Bates and his wife, Karen, offer training courses to help real estate agents understand the VA loan program, but admit they, too, sometimes must deal with the program’s intricacies.

“It can be frustrating how picky some appraisers can be,” Bates said, noting that a low appraisal or a determination that a home doesn’t meet basic standards can bring the process to a halt.

Still, Bates said the VA loan program is a major reason why now is a good time for service members to consider buying.

“The affordability index — your mortgage payments compared with your housing allowance — has never been better,” he said.

But Giffin said that “livability” requirement makes VA-backed loans not very useful for buyers trying to get rock-bottom bargains by making offers on bank-owned or foreclosed homes, which often lack basics such as fully functioning kitchens or working utilities.

VA will let the sale go forward if the appraiser determines before closing that the house meets livability standards, but some sellers don’t want the extra work when they could sell to someone without a VA loan, Giffin said.

“Agents, sellers and banks will still choose cash or conventional loans first,” he said. “It does take some strategy to position oneself with a VA offer. You need a really good lender and great communication with the listing agent.”

After living in a rented house since January, Air Force Tech. Sgt. Matthew Foulkes and his wife, Jacquline, an Air Force staff sergeant, closed on a new home in San Antonio on Aug. 31 using the VA home loan program.

The couple and their three children moved from Wichita, Kan., where they owned a house that they now rent out.

“We were planning on selling, but the market kind of dropped, just like [in] the rest of the country,” said Matthew, a lodging training manager with the Air Force Services Agency.

It took the Foulkes months after moving to San Antonio to decide whether they wanted to buy again or continue living in the house they initially rented there; they worried about being saddled with two mortgages if they couldn’t rent the Kansas home.

“But the rental community in Wichita works pretty well,” Matthew said, so they took the plunge in Texas.

The VA home loan program is “definitely a benefit people should use,” Matthew said. “We’re very happy with the way things are going.”