After completing countless Veterans Administration (VA) mortgage loan transactions over the years, Chris Pascoe, a Marine veteran turned RE/MAX agent, has developed something of a system.
First, he has his client’s lender call the listing agent. “This is an absolute must, especially in the market right now as it gives the lender an opportunity to fill the listing agent in on the buyer’s background and how the VA loan process works,” Pascoe explained.
Next, he has his buyers write a letter to the seller, a practice that has come under scrutiny lately for creating potential biases. “I’d say there is a 50/50 chance of a letter having an impact on sellers, but when things are tough, it’s worth a shot,” Pascoe said. He will also inform the listing agent that he is a veteran himself and implores them to ask any questions or express concerns they have about VA loans.
At the end of the day, Pascoe says the process is not all that different than purchasing a home with a conventional mortgage.
But because inventory remains at record lows, home prices have soared to astonishing highs, and bidding wars still occur in housing market across the country, Pascoe and other real estate agents on the buy-side have had to go the extra mile to fight for their VA clients.
Even under “normal” market conditions, VA buyers struggle to successfully purchase a home using their benefit. There remains a belief among listing agents and their clients that the VA appraisal and closing process will be a hassle.
These beliefs are largely a relic of a different era, said Coldwell Banker agent Alison Winsom.
“I think we have some outdated stories and some urban legend stuff around VA loans,” said Wisnom, who is based out of Annapolis, Maryland, home of the U.S. Navy. “Somebody has a problem once and then that story just spread. A lot of the rules have relaxed over the past several years, but people always tend to remember the negative things so that is what has spread throughout the industry.”
A lot of the misconceptions about working with VA loans center on the VA appraisal process – which differs from conventional mortgage appraisals – as well as the time it will take for a transaction to close. VA loans are secured by the VA, and statutorily must be appraised by the VA and not just any appraiser.
“I just closed two or three transactions with VA loans in 21 days, so you can’t tell me that we can’t close in under 30 days,” said San Diego-based Compass agent Todd Armstrong. ”But it isn’t a misconception that the VA appraisal process is stricter, but if you are smart in your property selection and how you make your offer, it really isn’t a big deal,” said Armstrong.
Unlike an appraisal for a conventional mortgage, VA appraisers can flag a wide variety of issues, from peeling paint to wobbly handrails and broken windows.
“The book of things that they can flag is like 180 pages long, but so long as the house is relatively new, the condition of the house is not as big of a concern, but with older homes it can be really hard because there are so many unknowns with things that could get flagged,” Becca Summers, a Keller Williams agent, said.
Agents listing older or more rundown homes will frequently leave notes in the MLS saying that the home will not pass VA appraisal and therefore they are not accepting any VA offers. This, however, doesn’t stop VA buyers from submitting an offer on the home.
“We can still make an offer, but we know there’s a higher likelihood that the seller is not going to work with us before we even step foot in the house,” Summers said.
Discrimination with VA Offers?
Some agents told RealTrends and HousingWire that some listing agents won’t even look at VA offers, which is tantamount to discrimination, even if they believe they’re simply being fiduciaries to the sellers.
“Occasionally I’ll see a property and they’ll put that it won’t go FHA or VA and I’ll look through the pictures be like, ‘Why?’” Pascoe said. “After a closer look I might find something that is a super simple fix like a little bit of peeling paint, but by not fixing it and saying they won’t take VA offers it is kind of as though they are automatically discriminating against veterans.”
Alex Naumovych, a loan officer at Draper & Kramer, has noticed similar trends in his work at a lender.
“Often times I’ll come in on a Monday and I’ll have emails saying that clients put offers in on homes and had them accepted even though we didn’t write up a pre-approval level,” Naumovych said. “That never happens when a VA loan is involved. They’ll just accept an offer with a conventional loan, but VA loans freak them out and they want more information even though it might be the strongest offer they receive.”
Although many listing agents do not want to work with VA loans, lenders, on the other hand, love them.
“From a lending perspective they are the easiest loan to work with,” Naumovych explained. “They have 100% financing, no mortgage insurance and there is no longer a loan limit and I am often able to give customers better interest rates even if they do not have a great credit score or their debt to income ratio is high. Other requirements for the transaction, like title insurance, are the same as for all other transactions, so it really isn’t a big deal.”
Closing do get done
While it can be challenging at times to complete a transaction with VA offer, many of the agents that spoke with HousingWire, know that it certainly can be done. Agents like Provo, Utah– based Summer have had success in getting their clients’ VA offers accepted, even in this past summer’s hot housing market, have developed a slew of strategies to make their client’s offers more enticing to sellers.
“One of the biggest concerns always is that appraisal is going to come in low, so in a super competitive market, if my buyers are able, I’ll have them commit to paying $5,000 over appraisal if the appraisal comes in low,” Summer said. “Terms are also really important. Some listing agents know that their property is priced too high and there is no way it will appraise for that much, so I’ll talk to them and try and feel them out. Once you know where the listing agent is, you can structure the offer to cover their concerns. You just have to be aggressive with your offer.”
Wisnom also likes to feel out listing agents when working with a VA buyer and using offer terms to cater toward an individual seller’s needs. “I’ll call the listing agent and try to gage their familiarity with VA loans, so that I can fill in any gaps in their knowledge,” she said. “I’ll then try to have the VA buyer address some of the seller’s priorities not just in terms of price, but, for example, I’ve had clients who had access to temporary lodging for a good amount of time and they were able to then give the seller flexibility on their move out. So it didn’t have to do with the price of the property, it had to do it with offering something else to the seller that was a benefit to them.”
Many real estate professionals that spoke with HousingWire believe that improved education is key to helping veterans have more success in using their hard-earned benefit.
“Licensing exams and prep classes don’t really dig deep into financing, so most of the education I have gained has come through working with lenders and VA buyers,” Summers said. “One of the most important things for me to learn was what questions to ask the lender when getting a pre-approval letter because the information you need to have for a VA loan is different than for a conventional mortgage.”
Wisnom, who works with agents who are new to the VA loan space to educate them about the product and working with veterans in general, recommends the NAR’s Military Relocation Professional Certification program as a good place to start. Armstrong agreed that the MRP certification is a good place to gain a basic understanding, but he and some of his colleagues have developed their own program, Fortitude, to help both agents and veterans improve their knowledge and understanding of VA loans.
“We do a lot of seminars,” Armstrong explained. “I do the real estate portion and I have my lender come in and do the VA loan portion. We work hard to get our buyer approved at the lowest rate and if they have credit problems we will put them in touch with the right people to get their credit restored. We really get down into the nitty gritty about how to use your VA loan to not only buy a home, but also use it as a way to build wealth.”
On the lending side of things Naumovych has had to learn a lot about VA loans, giving him a greater understanding of the product and how it compares to other types of loans.
“The average Realtor does not know a lot about VA loans because they don’t work with them very often,” Naumovych said. “More education is really the only way to improve this situation.”