What military buyer wouldn’t want to shave more than a third off the price of a home?
Distressed properties sold at an almost 37 percent discount in March 2017, according to RealtyTrac. Fortunately for cash-conscious military buyers, VA loans can be used to purchase foreclosure or short sale properties if the property meets the VA home loan guidelines set by the Department of Veterans Affairs.
But as experienced agents know, distressed property sales can offer unique challenges. Consider these tips for buying distressed properties with VA loans:
All properties in consideration for VA financing must submit to a VA appraisal, which compares properties against a list of Minimum Property Requirements (MPRs). Homes that fail to meet each MPR can't be approved for VA financing.
The goal of MPRs is to secure well-built, economically sound homes for veterans. As such, homes must be move-in ready and free of safety hazards. Some requirements include:
Distressed properties can have a hard time living up to MPRs. Foreclosures and short sale properties may not have been properly maintained by previous owners, and bank-owned properties are frequently sold “as is,” with zero tolerance for repairs.
The bottom line? Focus on quality homes in good repair.
Pristine foreclosure and short sale properties are out there, but they can be tough to locate.
Use all available resources to quickly pinpoint distressed properties that can easily pass the VA appraisal. Do you have good relationships with lienholders? Would distressed property training improve your knowledge and skills?
Identifying cooperative sellers is also a tool of the foreclosure trade. Obliging banks can simplify the VA loan process by agreeing to bring distressed properties up to MPR standards. Employ your own foreclosure experience and consult with other agents to find these sellers. Be sure to target accommodating sellers when filtering through distressed properties for your military buyers.
Assessing the value of a distressed property can be difficult for both agents and appraisers. Add in a volatile market or a neighborhood full of foreclosure sales and it can be tough for any two experts to agree on value.
Err on the side of caution when evaluating distressed properties. The VA appraiser will use comparables that reflect “typical transactions” for the market, which could certainly include other distressed property sales. Distressed property comps can drag down your Comparative Market Analysis value, but they may need to be included for the purposes of a VA loan sale.
It’s an unfortunate reality that some buyers are slammed with a heartbreaking appraisal value. Luckily, VA loan buyers have recourse for appraisals that are erroneously low. The VA’s reconsideration of value option allows buyers to petition for a secondary appraisal. If your buyer can show that pertinent information was not used in the initial appraiser’s report, a second appraisal may be granted.
Agents know that there’s nothing short about a short sale, and that buying an REO can involve miles of red tape.
Buyers also need to understand that distressed property sales can be more complex. Informed buyers are satisfied buyers, so be sure to explain the complications involved and how VA loan requirements will come into play.
Military buyers who are on a strict timeline for purchase may be better served with a traditional sale. But for those who are able to ride the foreclosure wave, a steal of a home may be just around the corner.
A VA loan is a mortgage option issued by private lenders and partially backed, or guaranteed, by the Department of Veterans Affairs. Here we look at how VA loans work and what most borrowers don’t know about the program.
VA loans allow Veterans to have a co-borrower on the loan. Here we break down co-borrower requirements and provide common scenarios around co-borrowing and joint VA loans.