Why are VA loans rejected by sellers?
Member since 2021 · 3 posts · 0 votes
I'm a veteran and I'm trying to use a VA loan to buy a house and every time I find a house in my price range that I like I always get denied and my loan isn't accepted. My question is, what is the issue with VA loans and why does every seller reject VA loans?
@Waylon Zook the loan type should have no bearing on the appraisal result, and VA loans are the only loan with which an appraisal doesn't stick with the property.
@Freddie Bogard It is because the VA loan is misunderstood by real estate agents (and a lot of lenders). That is why you need a real estate agent who understands the VA loan, and a lender who can go to bat for you, in order to help you take full advantage of this loan.
What market are you looking to buy in?
Again all markets are different, all loan officers and lenders are different. Sometimes I can close VA loans in 21 days in San Diego, with everything running smoothly and the right loan broker on the deal.
It's important not to assume, all markets work the same.
Offer a $5k or $10k earnest deposit with a 3-5 day inspection as your only contingency if you’re sure you’re approved. That way the seller knows they’ll be up $5k or $10k if you don’t back out within 3-5 days. A short enough time for them to get it back on the market.
In this seller’s market there are still people who will take less money to be confident the deal is done. Especially if they need the money for the purchase of their next house. I’ve made plenty of offers with zero contingencies because I know In my market the houses I target just don’t have huge problems. So if My lender says I’m approved I have zero problem offer a $10k or $20k non-refundable earnest deposit. It doesn’t cost me anything it just goes towards the purchase and often gets me a deal even if someone else offers $5k or $10k more.
Pretty sure one of the issues is that VA (or maybe it's just HUD) can't have non refundable EM, even if it's in the contract.
My family has tons of vets, and my wife used to work for the VA.. So I wish it were not the case but it's not unreasonable to think a seller would rather have a conventional loan buyer (all things being equal) than a VA loan. Just like they'd rather have cash than conventional.
The "problem" with the VA loan is all the stuff they do to try to "protect" the buyer does more harm than good. I see this also on the rental side. We used to take people with HUD VASH vouchers. Basically rental help from the VA. I thought it was awesome to be able to house vets. The problem is they make the process so time consuming with forms and inspections and etc etc in order to "help" the vets, but what happens is most owners would then rather rent to a "normal" (sorry, for lack of better term) tenant. Which means the only places that end up taking HUD VASH are properties that suck.
I think there is a parallel to the buy side.
In this market, I don’t think I’d want to take my property off the market for 30 or 60 days with a fully refundable earnest deposit. I think that alone would prevent me from accepting a va loan offer unless, and maybe even if, it was significantly higher than the other offers. I’ve purchased every property my offer was accepted on. But I know plenty of sellers that had deals dragged out for more than a month only to have the buyer flake, fi they were ever really a buyer in the first place. My wife’s friend accepted an offer for their home in November and move to their newly built home in Blue Diamond. 6 days ago they just received a request for another extension because of “new lender requirements.” I think she will lose her mind if this buyer goes away with all their earnest money.
In this market, I don’t think I’d want to take my property off the market for 30 or 60 days with a fully refundable earnest deposit. I think that alone would prevent me from accepting a va loan offer unless, and maybe even if, it was significantly higher than the other offers. I’ve purchased every property my offer was accepted on. But I know plenty of sellers that had deals dragged out for more than a month only to have the buyer flake, fi they were ever really a buyer in the first place. My wife’s friend accepted an offer for their home in November and move to their newly built home in Blue Diamond. 6 days ago they just received a request for another extension because of “new lender requirements.” I think she will lose her mind if this buyer goes away with all their earnest money.
Yeah, I'm not much of a seller, but when I do sell, I don't care what the price is... Or even what the Em is. If there is no non refundable EM, I don't accept it. I use that same desire I have as a seller when I buy: I am almost never the highest bidder but I come in aggressive with lots of non refundable EM, quick close, and a letter that states I aint here to play :)
@Aaliyah Walton Hey, I would love to connect, if not for trading stories and sharing deals! I'm
in Huntsville as well.
Well I feel I should update my first post on the thread. Offer #3, the seller came back to us after the first buyer they chose cancelled. So my active duty client is under contract for a 4 bed / 3 bath househack with one of the rooms convertible into a large 1 bedroom unit with own entrance, under 600K. That's 3 VA offers under contract in one week in San Diego.
@Freddie Bogard, I agree with others that there may be some misunderstanding when it comes to VA loans and you should definitely get a realtor who understands it and can be your voice to help you get the deal.
This being said, there are some reasons, (not related to the type of loan) that may sway a seller to going with another buyer. For example, places where the market is hot, sellers are getting multiple offers on a house on day 1...usually all over asking. Veterans, typically (not always) use a VA loan knowing they will have zero to very little down payment. People using other loans already expect to put down some money so it's likely they'll be able to put down more or have more reserves. This helps when it comes to appraisal.
Years back, when a seller sold to someone with a VA loan and the appraisal came in low, they would likely reduce the price to the appraisal amount rather than try to find another buyer. Today, in hot markets, a VA buyer may need to offer over asking or willing make an offer over asking if it's a house they really want. Keeping in mind that if it appraises lower, you'll have to pay the difference out of pocket.
We just sold our house in Phoenix and received 5 offers on the first day. As a vet, my heart said to go with the offer from a veteran but it was difficult to ignore an all cash offer who was willing to offer 20k over asking price. In the end, we actually ended up going with a family who had a conventional loan. Why, because although an appraisal would come into play, the buyers were planning on putting $100k down, so the appraisal wasn’t too important since they were not financing the full amount. And they offered 25k over asking price.
My advice to you. If it’s a home you absolute love write a letter. Tug at the sellers heart strings!!! Aside from that you could figure out how much you’d be willing and able to offer over asking. If the asking price is 100k, offer the 100k, then stipulate you’d go $1k over their highest offer up to X amount (ie; $115k) Make sure you make the seller have to provide proof of their higher offer. After getting rejected time and time again this is what we ended up doing and finally got an offer approved.
Best of luck to you!
The VA rules on termites can be a real pain in the butt. On a recent deal the appraiser called out some termite damage and "conditions conducive to termites". Seller agreed to repair all of it. Then the VA appraiser had to come back to certify the treatment/repairs were done. Apparently something was missed or there was a communication mix up and then the termite company had to come back and write a new report. Then the VA appraiser had to come back AGAIN. It was a real cluster$%^& and delayed closing by about a week.
Sellers don't understand VA loans.