How to Stay Competitive Using a VA Loan in a Sizzling Housing Market

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In a sizzling housing market, some military families using VA loans are struggling to buy homes, real estate experts say.

VA loans, mortgages partially guaranteed by the US Department of Veterans Affairs, funded 14% of home purchases from July 2019 to June 2020, according to the National Association of Realtors. Loans generally have no down payment, competitive interest rates, no private mortgage insurance, and lower closing costs.

However, in today’s hot market, some sellers are dropping offers of government guaranteed mortgages, such as VA loans, expecting a faster or smoother close with other options.

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“The seller wants the most money with the least hassle,” said Cedric Stewart, real estate agent at Keller Williams in Rockville, Maryland, explaining that sellers are concerned that some mortgages, such as VA loans, are more likely to fail. .

Indeed, 94% of realtors said sellers were most likely to accept an offer with conventional financing rather than a government-guaranteed loan, according to an April 2021 survey by the National Association of Realtors.

However, many of the concerns about VA loans are outdated, said Caitlin Turkovich, veteran and branch manager specializing in VA loans at Union Home Mortgage in Las Vegas.

According to mortgage software application company Ellie Mae, some 64% of home purchases with VA loans were closed in August, compared to 41% of conventional mortgages.

“VA loans are actually the easiest to get if you have rights,” Turkovich said, referring to the amount the VA will pay back if the borrower defaults, based on minimum service requirements.

While it is difficult to compete with cash offers, working with a lender specializing in VA loans can help “level the playing field” compared to conventional loan offers, said Turkovich, who describes his expertise and the number of recent VA loan closings in its clients’ mortgage. pre-approval letters.

Make a deposit

One way to stand out is to put down a 5% down payment, even if VA loans don’t require one, Turkovich said, which is the minimum for some conventional mortgages.

The 5% down payment also reduces the cost of financing the VA loan from 2.3% to 1.65%.

In some states, sellers can see how much the buyer can afford to spend up front, and it can make a difference if they list the home for more than the property’s value, she said. declared.

Here’s why: If someone is expecting dozens of deals on their home valued at $ 350,000, they can choose a list price of $ 365,000. And once the offers come in, they can compare buyers’ down payments.

For example, let’s say there is a conventional loan offer with a down payment of $ 20,000 and a VA loan with 0%.

If the sale price is $ 365,000 but the property is valued at $ 350,000, the buyer with 0% down payment must find an additional $ 15,000 as the VA loan will not approve more than appraised value, Turkovich said.

“As a seller, I will assume [the buyer with 0% down] didn’t have it, ”she said, noting why accepting the conventional loan with $ 20,000 down payment may be more attractive.

Stronger offer

Buyers of VA loans can also compete with a higher offer, Stewart said, such as paying more than the seller’s asking price or forgoing contingencies that allow a buyer to opt out on specific terms.

Another decision, to make a higher “down payment” deposit before the close, say 5% versus 1% standard, could also catch the seller’s attention, he said.

“The large down payment is another tool to communicate ease in the relationship,” added Stewart.

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