The VA loan, intended to help military members secure a home, may inadvertently become a hindrance. The loan’s strict requirements, which are meant to protect the buyer, could make it difficult for service members to purchase a foreclosure.
Since the collapse of the housing market, foreclosed homes have become abundant. In many areas, they represent the best deal for future homeowners. Yet, for active and retired military members, there are unexpected obstacles.
Though VA loans may seem daunting, the process is actually pretty simple.
The appraisal is to prevent military members from investing in a rundown home, which may become unaffordable later. This means that foreclosed homes, which often need some improvements, can be off-limits for military members.
The VA requires that all properties meet certain health and safety standards before purchase. For a home to be approved, the VA requires an inspection of the property to insure that it is move-in ready.
NPR speaks with Bill White, assistant director of loan policy for the VA, who says even the VA has thought about these challenges.
The offer of zero down payments has made the VA loan popular among service members. But property sellers, especially those selling foreclosed homes, are sometimes wary of the VA loan appraisal and inspection process. This process can at times be difficult if the foreclosed property has any defects that the VA requires the property seller to fix before the home can be approved.
According to the Veteran Journal, it is not unusual for sellers of foreclosed homes to accept a lower cash bid rather than deal with the VA loan appraisal and inspection process.
The journal speaks to Guy Cecelo, CEO of Inside Mortgage Finance, who points out "...buyers may be willing to pay a certain amount for the home, but if the appraiser doesn’t agree that the house is worth that much, the seller ends up accepting a lower amount."
The Department of Veteran Affairs acquires property as a result of VA guaranteed homes falling into foreclosure.
These properties are marketed for sale through a property management contract, which was awarded to BAC Home Loan Servicing LP. To browse available homes, service members can visit Equator Financial's listings or search using Multi Listing Systems (MLS).
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Your Certificate of Eligibility (COE) verifies you meet the military service requirements for a VA loan. However, not everyone knows there are multiple ways to obtain your COE – some easier than others.