So you’ve just put your home up for sale and had your first open house. Before you know it, you have multiple offers and it’s time to decide which offers to reject and which offer to accept (or counter-offer). While mulling through your offers you notice that you have a potential buyer who plans on using a VA Loan to purchase your property.
When discussing the offer with your real estate agent, she advises you to ignore the offer by the VA buyer since the Veteran is not allowed to pay certain closing costs on a VA Loan – which in essence, could equate to additional costs for you, the seller. Is this wise advice? Let’s take a look.
The VA Non-Allowables
It is true that with a VA Loan, the Veteran is not allowed to pay for the VA Non-Allowable closing costs which on average will save the Veteran roughly $1500-$2000 in closing costs – and thus, potentially more cost for the seller. But here are two facts that the seller must realize before deciding to deny the Veteran’s offer:
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Termites: those creepy, crawly bugs that love to chow down on your home can be a major pest here in Hawaii (pun intended). How do they play into your VA home purchase process? Well, the VA states “Termite inspections are required on existing properties if they are located in an area where the probability of termite infestation is “very heavy” or “moderate to heavy” according to the Termite Infestation Probability Map published in the International Residential Code.” Guess what, Hawaii is considered a “very heavy” infestation area.
Luckily, a VA borrower does not have to pay the approximate $350 it costs for the inspection; this is seller’s responsibility. Also, any damage or infestation associated with termites must be corrected before the purchase can close, and at no cost to the VA borrower.
What can you expect on your termite report?
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Normally, when homes are sold the existing mortgage is paid off. However, there are cases when the purchaser of a home can take over the existing loan payments. This is referred to as “assuming” the loan. Not all types of loans have this feature. Typically, it is adjustable rate mortgages that are assumable (and only after their initial fixed period is complete). However, VA loans are assumable even for fixed rate loans (FHA loans too, but that’s a writeup for another time). Following is some more information about VA loan assumability.
Assumable VA Loans
If the original loan was a VA Guaranteed Home Loan originated (closed) after March 1, 1988,
under certain circumstances, it is possible for a veteran to sell the property subject to the
assumption of the loan payments by the purchaser. The purchaser assuming the VA loan
payments does not have to be a veteran.
What’s the Appeal?
An assumable loan may be very attractive to potential buyers if current interest rates
are higher than when the seller took out the mortgage. The buyer can continue to make payments at the seller’s lower rate rather than at the higher market rate.
Is There a Downside?
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So, you found your dream home, got your accepted offer, and everything is flowing along smoothly with you lender (hopefully it’s us). You’ve already picked out the new colors for the bathroom & kitchen, found all you need to know about schools in the area, and have already decorated the entire home in your mind. It’s a wonderful and exciting process purchasing a new home. You get a phone call from your lender, and they have some not-so-great news. The 3rd party appraisal came in with a value less than your accepted offer. No lending institution (that I know of) will lend more than the appraised value of the home, and clearly this can be an issue if the appraisal comes in low. Yikes!
So, what exactly does this mean? Do you lose the home? Can you still continue? Luckily, there are a few options available to a VA borrower:
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Okay, so you’re a Realtor and you run into an interested buyer who happens to be VA eligible. She’s heard of all the great benefits tied to the VA Loan program and she’s ready to go. Before you run out the door to show property, here are the 5 most common mistakes you should avoid when representing a buyer (or seller) in a VA transaction.
1. Putting an offer on a condo that is not eligible for VA financing
Though most condos are eligible for VA financing, there is still a significant amount of condos that have either been denied VA approval, or have yet to go through the approval process. Whatever the case, the last thing you would want to do is waste your time (as well as your buyer’s time) showing property that your buyer can’t finance.
Solution
If you know your buyer is going to do VA financing and they are looking for a condo, go ahead and verify the condo is approved by using our VA Condo Eligibility Check Tool.
In addition, just because a property looks like a Single-Family Dwelling (SFD), it doesn’t mean it is a SFD. In Hawaii, it’s quite common that home is built on a CPR lot. In this case, the dwelling would be considered a “Site Condo” in which the same condo rules apply; it must be approved for VA financing.
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Aren’t They the Same Thing?
There is often confusion about the difference between getting “prequalified” and “preapproved” for a loan. Don’t they mean the same thing? It’s common to think so, but they’re actually different.
Prequalification
Getting prequalified means that you’ve contacted a loan officer, allowed them to review your credit, and provided them verbal information regarding your assets & monthly income. The loan officer determines an approximate monthly payment for the proposed loan and makes sure that the Debt-to-Income ratio (how much you make vs. how much you pay out in monthly expenses each month) is within tolerance. The process can take as little as 15 minutes over the phone.
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The Lesson
I learned an expensive lesson this week. In general, for Hawaii purchase transactions, escrow fees are split 50/50, owner’s title insurance is split 60/40 and the conveyance tax is paid by the seller. I learned that this is not law, actually just the traditional agreement as outlined in the HAR (Hawaii Association of Realtors) standard purchase contract, Section C-11.
The transaction I was about to close was an REO (bank or lender owned property) owned by Fannie Mae. Fannie supplies their own purchase contract and within it is a section that states that, regardless of local tradition or customary practice, Fannie Mae will not pay any transaction costs nor any transfer (conveyance) taxes. This means that the buyer is responsible for 100% of the escrow/settlement fees and 100% of the owner’s title insurance premium.
…and Even More to Learn
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The $8,000 first-time homebuyer credit just won’t quite go away. As much as we’d love to say this was for everyone, it’s a bit limited in scope, but if you qualify, what fine, fine news! Eligible taxpayers who contracted to buy a home qualifying for the first-time homebuyer credit before the end of April now have until Sept. 30, 2010 to close the deal, according to the Internal Revenue Service.
The Homebuyer Assistance and Improvement Act of 2010, signed by the President earlier this month, extended the closing deadline from June 30 to Sept. 30 for any eligible homebuyer who entered into a binding purchase contract on or before April 30 to close on the purchase of the home on or before June 30, 2010. The new law addresses concerns that many homebuyers might be unable to meet the original June 30 closing deadline.
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The end of an era is fast approaching. Real Estate professionals and potential homebuyers across the country are scurrying to submit purchase contracts before the swiftly looming April 30th deadline of the $8,000 First Time Homebuyer Tax Credit. This tax credit has been wildly successful; the IRS states that over 1.4 million first time homebuyers took advantage of this program as of September 2009. While those numbers are a bit dated, it does show how successful this piece of legislation was.
So, what does this mean for a good majority of us? Well, it’s just back to business-as-usual. Rates are low, housing prices have settled, and the economy is starting to turn around – even without the credit, it’s still a great time to buy.
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In our last post we defined what a short sale is and what it isn’t. Here we will go through the process in more detail. I’d like to thank Attilio Leonardi of Team Lally & RE/MAX Kapolei for his insights into the process. He and his team have sold over 80 short sale properties and gladly shared their knowledge.
Of course, nothing is too good to be true, so let’s take a quick look at the potential challenges one could face when attempting to purchase a short sale property.
Potential Challenges
Short sales can be challenging for a number of reasons: (more…)
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