Now that home prices have declined significantly on the Central Coast, we are beginning to see the return of VA financing. VA financing limits the purchase price of a home to $417,000, which was the previous FHA limit as well. So, with the decline in home prices, VA financing has become a viable option again, and many potential VA buyers, real estate brokers, and mortgage lenders have begun re-educating themselves on VA financing requirements.
This is especially important to the Central Coast as we are home to Vandenberg Air Force Base, which is home to the 30th Space Wing, which manages missile and space testing for the Department of Defense. So, we have a great deal of active duty and retired military in the local area who are eligible for a certificate for the VA home loan guaranty program. This post offers a few tips for those buyers. Also you can start your home search on my website, where you can search for Central Coast homes, and also for homes immediately adjacent to Vandenberg Air Force Base.
Importantly, the loan limits for VA financing were not raised with the recent legislation which raised FHA limits to $729,500 in high cost areas, so VA buyers are still limited to a maximum of $417,000. I have mixed feelings about the FHA limit being raised especially since the median home price in California has now almost slipped below the previous $417,000 limit, but I’ll address that in another post. Currently, the California Association of Realtors indicates that as of January 2008, the median home price in California is approximately $430,000. So, VA financing is again a viable alternative for many, and especially for first time buyers who are spending a lot less than that amount for their first home.
First things first, military personnel who wish to use VA to finance a home purchase must obtain a certificate of eligibility through the Department of Veteran’s Affairs. usually, an experienced lender can obtain a certificate almost instantly by using an automated system VA set up just for that purpose. In some cases, you may need to submit a form and wait for a certificate to be mailed to you in order to establish your entitlement to this benefit.
The next step is qualifying your income and credit. Again, this is where your lender comes in. From my discussions with lenders, I’ve learned the most important aspect of qualification for VA loans beyond income is not the credit score of the applicant, but their most recent credit history. Namely, whether they have made timely payments in the past 12 months. Nothing sinks a VA buyer quicker than recent late payments made on their accounts. If there is more than one late payment in the past 12 months, you may still be able to get the application manually underwritten; however, the more “lates” you have on your credit, the less likely the possibility of squeaking through becomes. So, if you want to buy with VA financing concentrate on keeping current with your payment obligations. I’ve experienced VA approving buyers with credit scores in 500’s, and I’ve also experienced other buyers being rejected for late payments. So it seems that your overall credit history (or lack of credit history) will affect you less than being late on your car payment for the last 2-3 months.
Also be aware that when you make an offer with VA financing, it may not be as strong as an offer from a buyer using conventional financing. Part of this is dependent upon whether you ask the seller to pay closing costs and/or make other concessions. Closing costs with VA loans tend to be a bit higher than for conventional loans. If you don’t have closing costs saved, you can request that the seller pay them, but of course that will impact the strength of your offer. You can also stack them on top of the purchase price in your offer, and that way the seller gets their full price and you don’t have to pay the costs out of pocket. This also assumes that the home will appraise at the higher value; sellers who are asking a price close to a reasonable estimate of their appraised value will take this into consideration as well. Lenders I’ve spoken with estimate about 4% of the purchase price for closing costs on a VA loan. Conventional lenders will typically only allow buyers to request closing cost help from the seller of up to 3% of the purchase price (because they fear fraud if a lot of money is being given back to the buyer), but VA will allow up to 6% of the purchase price to be paid by the seller as closing costs and/or other concessions to the buyer.
The other major hurdle with VA offers is typically the timeline. Most lenders will tell you that it is difficult to close a VA loan in under 45 days. This is primarily due to the VA appraisal process. VA uses their own appraisers and there are fewer appraisers that are qualified to do VA appraisal work. As a result, their workloads are heavy and they cover larger geographic areas than other appraisers. For example, in my experience with non-VA appraisers, I can usually get an appraisal completed within one week. On a VA transaction, it may one week just to get an appointment for the appraisal! Also, the appraisal may indicate that additional work must be completed which can throw a wrench in the works late in a transaction. And, of course, this can be very tricky when you’re buying a bank owned property and you have a seller who will make NO REPAIRS. Therefore, at the outset if the buyer has no additional funds, you should make sure to ask for seller concessions that will cover closing costs, active infestation termite work (this will be a guess unless a termite report is on file), and any other repairs VA might require (another guess until appraisal is done and estimates for the work have been completed). But again, asking for more money back from the seller, or stacking the costs on top of the purchase price can also impact how attractive your offer is. So, there are a lot of variables, and experienced listing agents know that and as a result many are wary of buyers using VA financing.
All of the above is based on my experience as well as informal and anecdotal interchanges with loan officers. You should do your own research on these issues, as none of it is meant to be a guaranty of what it will take for you to qualify for a loan or successfully complete a transaction. It is offered merely to give potential VA buyers an indication of the possible pitfalls involved with using the VA home loan guaranty program.
If you are transferring to the area, retiring from service, or have too many dogs to live on Base, I would love to help you find a home using your VA eligibility certificate. These transactions can be challenging, but I’m up to the challenge. Please feel free to give me a call today, I make it a point to be available to my clients by cell (805) 878-9879, so please give me a call today so we can begin the process of finding the perfect home for you.