Top 5 Mistakes a Realtor Should Avoid on a VA Transaction

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.

If the Site Condo has not been through the approval process as of yet, we can help.  Contact us and we can let you know exactly which documents to collect from the seller in order to try and get that particular Site Condo approved with the VA office.  Just be prepared, the approval process can take anywhere from 2-4 weeks after getting the necessary documents.  There is often more documentation to gather for established buildings, but those can also be submitted for VA approval.

2. Putting an offer on a property that has un-permitted additions

One rule that the VA is very strict on is that they don’t allow financing on properties without the necessary permits.  This is more common on SFD than with condos in which the owner decides to make an extension or put in an additional bathroom without getting the proper permits from the permit department.   On a VA loan, if the appraiser points out that any additions or improvements were done without the necessary permits, the VA will not guaranty the loan.  Without the VA’s guaranty, you won’t find a lender who will finance the loan.

Solution

Before putting an offer on a property (especially on a SFD) request the permit package from the seller’s agent.  Also, double check the tax records.  If the sketch and dimensions don’t match up with the physical dimensions of the property, it’s more than likely the property is missing the necessary permits.

If your buyer is still adamant about wanting to buy this property, and the buyer has enough for a significant down-payment, consider having them do a conventional loan vs. a VA or FHA loan.  Most conventional mortgages (depending on the lender) will allow non-permitted additions, as long as the appraiser doesn’t count the value of these additions in the appraised value.

3. Not being proactive with getting condo docs

On VA Loan for a condo purchase, the lender is unable to order the appraisal until they have the necessary condo docs.  The necessary condo docs are:

  • RR105C (Condo Questionnaire)
  • Budget & Financials
  • Last two Meeting Minutes

Solution

If you are representing a VA buyer, make sure you are adamant with the seller’s agent that you’ll need the condo docs ASAP to avoid a delay in ordering the appraisal.  If you are representing the seller, after getting an accepted offer, request the condo docs from the condo management company right away.

We’ve had circumstances in which it took a full 2 weeks to get the condo docs.  Tack on an additional 2 weeks or so it takes to get the appraisal back, you are looking at a full month from the open of escrow to getting an appraisal.  You can see how this can seriously delay the closing of a transaction if condo docs are not received right away.

4. Having a contract signed without a VA addendum (or using an inadequate VA addendum)

Having a VA Addendum signed at the time of the purchase contract does three things:

  1. Discloses that the Veteran can back out of the transaction (get a refund of their escrow deposit) if the appraised value comes in below the agreed sales price.
  2. States that the seller(s) must provide a termite inspection report at no cost to the Veteran.  If the report shoes there are termites or termite damage, the seller will have to pay for a tenting or repair any damages prior to close of the transaction.
  3. Identifies who’s paying for the VA Non-Allowable closing costs that the Veteran cannot pay for.

If this VA Addendum is not presented to the seller(s) alongside the purchase contract when making an offer, the seller may not know the full implications with agreeing to accept an offer by a VA buyer.  Without seeing the VA Addendum, the seller may have a skewed view of the total costs involved with selling their property. Obtaining the seller’s signature on the addendum after already agreeing to the purchase contract is always a little harder task to accomplish.

Solution

When requesting the Pre-Approval letter form your VA Loan Specialist, make sure you also request the VA Addendum to the Purchase Contract.  This way you can submit the Offer, the Pre-Approval letter and the VA Addendum all at the same time.

We’ve also seen some real estate firms furnish their own VA Addendum  We’ve noticed that some of these VA Addendums don’t cover the three necessary items as described above.  It’s always best to get the VA Addendum from the lender since the lenders’ underwriter will be the one to determine if the VA Addendum is sufficient for the transaction or not.

5. When representing the seller, denying a VA buyer’s offer due to concerns of additional costs.

One of the biggest myths we’ve encountered concerning VA Loans is the misunderstanding of the seller’s costs on a VA transaction.  We still hear from agents saying that their seller’s won’t accept a VA transaction because they think that they will have to incur several thousands of dollars in additional closing costs.

Reality is that on average, the VA Non-Allowable costs that Veterans cannot pay for is roughly in the $1500 – $2000 range.  In addition, there are many lenders, Hawaii VA Loans included, who are proactive in paying for at least half of the VA Non-Allowables.

With the lender’s help, it’s quite common that the additional expenses incurred by the seller will be roughly $750-$1000.

Solution

Before denying a VA Loan offer, find out if the lender will be covering any of the VA Non-Allowables (should be disclosed in the contract or on the VA Addendum).  In this market, VA Loans are probably the closest thing to a sure bet when it comes to mortgage financing.  In an industry that has seen drastic changes with tightening guidelines, the VA Loan program has been the most stable and least restrictive when it comes to their lending standards.  With the many benefits tied to the VA Loan program (no down payment, no mortgage insurance, reduced closings costs, flexible qualifying guidelines, etc.), there are fewer obstacles that can prevent a VA approved borrower from falling out of escrow.

In other words, it may be foolish for a seller to deny an offer from a VA buyer for simply $750-$1000 in additional expenses.

Recap

The VA Loan program is a great loan product that many Veterans are taking advantage of in today’s market. Hopefully this review of the common mistakes we’ve seen Realtors make, will be helpful the next time you have a VA transaction!