Debbie Rumsey, a REALTOR in Encinitas, CA commented that buyers with VA home loans face increased scrutiny from sellers and their agents, on an article I wrote about VA condo complex approvals:
Thanks Brian! I have bookmarked this for a place to refer back to when using VA loans. The hardest part so far seems to be able to get sellers to accept them! Glad to hear it is easy once you have received acceptance!
Debbie, I think we have to get really proactive when you present an offer for a buyer using VA or FHA financing. There are three reasons sellers discriminate against buyers using government- assisted financing:
- The low down payment requirement means less skin in the game
- The (misguided) perception that the seller must pay for some or all of the buyer's closing costs
- The (false) belief that VA and FHA appraisers are (a) less generous in their valuations and (b) more restrictive in the remarks about property condition.
Debbie, I'll share with you how I've been helping agents debunk those three myths and get offers accepted (and eventually closed).
The low down payment requirement means less skin in the game
We can't debunk this because it's factual. What we can do is show the seller that the borrower has an automated underwriting approval and furnish income and asset documentation to support that approval. What this does is assuage the fears a seller might have about a buyer (and that buyer's lender) performing within a prescribed time period.
The (misguided) perception that the seller must pay for some or all of the buyer's closing costs
The seller is not required to pay ANY costs for the buyer but is permitted to pay up to 6% for FHA loans and up to 4% for VA loans. There are certain "non-allowable" costs for which the buyer is forbidden to pay. Either the real estate agents or the lender can pay those costs. All you (or any other agent) needs to request is a "no junk fee" good-faith-estimate to be furnished to the buyer. It is further advised that the following language be inserted in to the CAR purchase and sale agreement:
Seller not responsible for any buyer closing costs, regardless of the selected loan program. All agency-related "non-allowable" costs to be borne by lender.
The (false) belief that VA and FHA appraisers are (a) less generous in their valuations and (b) more restrictive in the remarks about property condition than conventional appraisers.
This is a common misperception. In the 1990s, it was widely believed that FHA and VA appraisers would intentionally "low ball" appraisals and "condition" for repairs on the property in order to "cover themselves" with the agency. The agencies did require the appraisers to warrant the condition of the property, much like a property inspector, in the late 1990s. The agencies relieved the appraisers of the (unfair) responsibility in the early part of this decade. Still, agents have a bad taste in their mouths from that time period.
Agency-approved appraisers are required to comment on the condition of the property inasmuch as it relates to livability, just like conventional appraisers. Real estate agents also relied on the "clubby nature" conventional lenders had with their appraisers; those close relationships were removed with the implementation of the Home Valuation Code of Conduct.
In summary Debbie, what we need to do is to be really proactive with the offer. Lenders (like me) need to give REALTORS (like you) a better pre-approval package so as to relieve the seller of any doubts that the loan can close. REALTORs need to address seller-paid closing costs in the offer, and we both probably need to attach a copy of this article to better educate listing agents (and their clients) about how HVCC has made all appraisals equal.
