If VA home loans and FHA mortgages are great for buyers, why won't sellers accept them? Debbie Rumsey suggested as much when she commented on my post about VA condo complex approvals, here on Active Rain.
Here is how real estate agents can debunk seller-held myths and get an FHA or VA offer accepted:
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.
PS: I read some of the comments and I must disagree with the finite statements about hopelessness for FHA and VA offers to bank asset managers. Buyers, and real estate agents are frustrated with the process bank asset managers and their listing agents use.
The process involves little, if any, human interaction. Blind submission to that process weakens the chance to present better offers. I've worked with real estate agents who "camp out" on the listing agents' door step, before they open, to get "face time" with the asset manager. The idea is to cut through the mechanized process that might eliminate your chances and display that the loan approval you have is solid.
If you are having a problem getting offers accepted, you might consider a new loan originator and real estate agent.
Brian, I love the idea of, "good-faith-estimate to be furnished to the buyer." I also have experience, many times, VA appraisers coming in low. I don't think it is a myth. One particular local VA appraiser has killed more deals for me & my agents & it drives us crazy! What do we do!?
You can actually "appeal" the appraisal with the VA but it takes weeks, Don. Try to be proactive and have the listing agent furnish the appraiser with his comps. Have the loan originator arrange for a conference call with the appraiser to clarify why he can 't use those furnished comps, if the valuation is low.
One of the most common "hits' I've seen is when the purchase price is increased, above listing price, to accomodate for the seller-paid contribution. Be wary of that when submitting/accepting offers and have a back-up plan. A good VA lender will have a plan for the borrower and be able to articulate it to the listing agent before the appraisal is ordered.
I've heard this stuff for years. Balderdash.
I'm inspired.
Hi Brian,
I have to take exception. The low down payment does not mean less skin in the game. The veterans have already put their life on the line for us and that's plenty of skin in the game for me! I agree with Lenn if the house is priced right the home will not have any problems appraising. Ive had 3 VA loans this year and they went smoother than many of the conventional ones as the lender knew what they were doing.
Brian,
Thanks for the info! I now know I can add the clause: "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."
Very good tip for us!
Sue
I work with a good number of VA buyers. They have bought regular sales, short sales and foreclosures. We haven't had an appraisal issue, a funding issues or any issues. Add to that I've been the sales agent for a new condo building and we jumped through all of the right hoops and have VA approval for our building. It is amazing how a lack of understanding could potentially hurt a qualified VA buyer.
Any agent may have an issue with value or work orders on VA or FHA loans, but that isn't necessarily a rule. If a home is priced right, and if the offer is reasonable, it should go smoothly.
The low down payment does not mean less skin in the game. The veterans have already put their life on the line for us and that's plenty of skin in the game for me!
While I agree with you philosophically Dorie, not all sellers see it that way. Our challenge is to communicate that philosophy we share so that the seller understands how much these folks really DID risk
This is a good post. Education of the seller's and buyers when dealing with any form of financing is inportant. If the offer is fair and the financing is in place (reguardless of ist origination) all should go well. Debunking misconseptions is important.
Brian
Good piece on VA. Always enjoy your commentary.
Merry Christmas
Thanks for the nice Christmas wishes, Wayne. Merry Christmans to you, too
I LOVE your recommended clause about the seller's buyers closing costs. I'll put that to use right away! Great information, thank you.
I have experienced the low appraisals and then just the other day I received one that is unbelievablely high - not calling stoves that are popping when turned on. That could be a safety issue. So I can't say all do but some appraisers are out to lunch.
FHA offers with bank owned propertie or REO in Los Angeles County are lesss likely to be accepted regardless of the way it is presented, cash offers and conventional loans are completion. thanks for the post.
Indeed they are, Lupe but presentation is everything. Agents should enlist the help of the loan oroginator to properly present those offers to the listing agents, so that they can prsent them properly to the asset managers. It's extra work but good loan originators welcome the challenge to help you.