Many veterans are familiar with using the VA home loan to purchase a home. But, not as many understand loan considerations from the seller’s perspective. As such, we’ll use this article to help people preparing to sell to a VA home loan buyer.
Specifically, we’ll cover the following topics:
- VA Home Loan Overview
- Who Qualifies for the VA Home Loan?
- Advantages of Selling to a VA Home Loan Buyer
- Preparing to Sell to a VA Home Loan Buyer
- Final Thoughts
VA Home Loan Overview
Prior to selling to a VA home loan buyer, it helps to understand the basics of this loan program.
The VA home loan provides veterans and active military members an outstanding path to homeownership. The Department of Veterans Affairs (VA) administers the program but doesn’t actually issue loans. Instead, the VA works with a variety of different lenders (e.g. banks, credit unions, mortgage lenders, etc.) to guarantee VA home loans. With this guarantee, lenders face less risk from borrowers defaulting. If a borrower stops repaying a loan, the VA will reimburse the lender a portion of the outstanding loan balance.
Due to this reduced risk, VA-approved lenders can offer the following tremendous benefits:
- No down payment required
- No private mortgage insurance (PMI) required
- Low interest rates
- Streamlined refinancing option via the Interest Rate Reduction Refinance Loan (IRRRL)
For sellers, it should be clear how these terms improve a VA home loan buyer’s purchasing power. Between the no-down, low-interest, and no PMI characteristics, VA buyers will qualify for a wider range of price points than similar buyers using a conventional mortgage.
Who Qualifies for the VA Home Loan?
However, sellers shouldn’t see veteran and assume a buyer qualifies for the VA home loan. Rather, the VA outlines specific eligibility criteria for who does and does not qualify for the home loan program. And, not all veterans will have access to this program.
From the seller’s perspective, the specific loan qualification criteria don’t matter. In other words, sellers don’t need to concern themselves with different VA-mandated service requirements for using the VA home loan. Veteran buyers may not want to disclose their service history to a home seller, nor should they feel obliged to disclose this information. What does matter is whether or not the VA has approved the loan eligibility of your potential buyer.
The VA confirms a buyer’s home loan eligibility with a Certificate of Eligibility, or COE. And, while sellers certainly can ask to see this COE, a better option exists. VA-approved lenders will pull veterans’ COEs for them during the loan application process. Consequently, if veterans have been pre-approved by a VA-approved lender for a VA loan, home sellers will know that they have their eligibility.
This pre-approval also provides further assurance that a veteran won’t have any trouble closing on the loan.
Advantages of Selling to a VA Home Loan Buyer
Selling to a VA home loan buyer certainly comes with some additional considerations. And, we’ll discuss these in the next section. But, sellers should also understand two key advantages to selling to these buyers. In general, these advantages outweigh any additional VA home loan requirements.
Realistically, saving enough for a down payment poses the largest obstacle to buying a home for most people. The VA home loan’s no-down quality negates this problem. Buyers using the VA home loan can afford more than most of their non-VA peers for this reason alone. And, not needing to pay PMI expands this purchasing power even further. While amounts vary, veterans can expect to save around $100 per month without this expense. This payment reduction increases the loan amount veterans can access.
Loan Closing Reliability
A myth exists that VA home loans are more difficult to close than conventional ones. This simply isn’t the case. According to mortgage provider data, over the past five years VA home loans have successfully closed at a higher rate than conventional ones. No closing is guaranteed. But, this fact should provide sellers confidence in the likelihood of successfully closing with a VA home loan buyer.
Preparing to Sell to a VA Home Loan Buyer
In many respects, preparing to sell to a VA home loan buyer parallels preparing to sell to any buyer. Accordingly, we’ll highlight the differences here. When working – or potentially working – with a VA loan, sellers should complete the following tasks.
Check Minimum Property Requirements
The VA home loan program exists to promote veteran homeownership. Consequently, the program imposes Minimum Property Requirements, or MPRs, that all properties must meet to qualify for a VA home loan. Basically, the VA wants to confirm that homes are safe, sanitary, and habitable. To avoid potential delays in the closing process, sellers should confirm their homes meet MPRs – before listing their property. That way, they can accept an offer from a VA home loan buyer with confidence.
Confirm VA Loan Eligibility via Pre-Approval
As discussed, being a veteran doesn’t necessarily mean a buyer qualifies for a VA home loan. Unfortunately, some buyers make this mistake, as well. And, no seller wants to waste months under contract if a buyer won’t ultimately qualify for financing.
Loan pre-approval doesn’t guarantee that a buyer will successfully close on a loan – obstacles can always arise at the last minute. But, requiring a pre-approval letter before accepting an offer from a VA home loan buyer accomplishes two items:
- It confirms that the lender has verified the veteran’s VA loan eligibility status.
- It increases the likelihood that the lender will ultimately approve the loan, as pre-approval entails lender-verified financial information.
NOTE: Having VA home loan eligibility does not guarantee that a veteran will be approved for a loan. Veterans still need to meet the lender-specific borrowing requirements (e.g. income, credit score, debt-to-income ratio, etc.).
Complete the VA Appraisal
Any home transaction involving a mortgage will require an appraisal. This is how lenders verify a home’s value, as they will not provide loans for more than a home is worth. All VA home loan buyers will need to complete a VA appraisal prior to closing. The primary purpose of this is to confirm value.
But, VA appraisals also serve as a way to verify the VA’s MPRs. While appraisers don’t complete full home inspections, they will highlight major MPR violations in their reports. And, when the VA reviewers see these items, they’ll put the loan approval on hold. These issues will either need to be resolved, or the loan won’t receive approval. As discussed above, sellers can avoid this situation by reviewing a property for MPR compliance before listing it for sale.
If concerned about MPR issues, sellers should hire an appraiser with VA experience. These professionals will be able to inspect your home and let you know what property issues to fix. That way, you’ll significantly minimize the likelihood of an MPR surprise during the VA appraisal required by any buyer using the home loan program.
In general, selling to a VA home loan buyer is no different than selling to any buyer. These VA buyers are actually more reliable than most other buyers. However, some differences do exist. And, by understanding how to prepare to sell to a VA home loan buyer, sellers put themselves in the best situation to close a home sale.
Maurice “Chipp” Naylon spent nine years as an infantry officer in the Marine Corps. He is currently a licensed CPA specializing in real estate development and accounting.
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