CONTACT A VA LOAN SPECIALIST:
Did you know that Hawaii has eleven military installations? As a Realtor, it’s likely you will work with a VA eligible homebuyer – if you haven’t been doing so already. Therefore, it’s important to stay savvy and knowledgeable on the common mistakes that can be made when representing a buyer in a VA transaction – and how to avoid them!
As Hawaii’s local VA lender since 2007, we have nearly a decade of experience building relationships with our service members and veterans in Hawaii. It is an honor to guide them through the VA loan process from pre-approval to loan funding. We hope that you find our advice valuable to your work with VA buyers as well!
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. The last thing you would want to do is waste valuable time showing a property that your buyer can’t finance.
Solution
Verify the condo is approved by using our VA Condo Check Tool.
In Hawaii, it’s quite common that homes are built on a CPR lot. In this case, the dwelling would be considered a “Site Condo” rather than a SFD (Single Family Dwelling). Homes on CPR lots must be approved for VA financing much the same way as the condo buying rules.
If the Site Condo has not been through the approval process as of yet (sometimes due to it being new construction), 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. Be prepared, the approval process can take anywhere from 2-4 weeks after gathering the necessary documents.
2. Putting an offer on a property that has non-permitted additions
On a VA loan, if the appraiser points out that any additions or improvements were done on a home without the necessary permits, the VA will not guaranty the loan, and 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, consider applying for an exception. In 2014, the VA reinforced its guidelines to exceptions regarding permit requirements:
- The VA will grant exceptions to permitting guidelines and issue a guarantee for loans on properties with certain types of non-permitted improvements. The VA buyer and lender must indicate that they have knowledge of the situation and hold the VA harmless for any effects of the “non-permitting.”
- The VA will not issue guarantees for loans where the non-permitted improvements create a possible health, safety or soundness hazard unless proof is submitted to the VA for a determination that they do not present a health, safety or soundness issue. Specifically, in order to get exceptions from the VA for electric or plumbing work that was non-permitted, a licensed plumber/electrician will need to certify that the work was done to code.
If the exception process fails, consider having your buyer 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 documents. The necessary condo docs are:
- RR105C (Condo Questionnaire)
- Budget & Financials
- Last two Meeting Minutes
Solution
If you are representing a VA buyer, be clear with the seller’s agent that you 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.
There have been circumstances where it took two weeks to get the condo docs. Tack on the additional two weeks or so it takes to get the appraisal back, and you are looking at a full month from the open of escrow to getting an appraisal. Receiving the necessary condo documents right away is essential to the process.
4. Not accounting for VA Minimum Property Requirements (MPRs) when listing or making an offer on a property
MPRs are set in place to protect the veteran from purchasing a home of substandard quality, and to ensure that the home does not become a money pit of repairs for the VA buyer.
The top four MPRs that arise on VA loans are:
- Dry rot and termite damage
- Water stains
- Peeling or cracking paint
- Safety hazards
- Foundation and settlement issues
- Grading issues
- Electrical hazards
Solution
Each of the above issues needs to be addressed prior to the closing of a VA loan. We have two very informative and easy resources that provide examples and solutions on how to overcome the top four MPRs we often see.
To learn about additional VA Appraisal issues and their solutions, go to VA Appraisal Red Flag Issues – Part II.
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 sellers won’t accept a VA transaction because they think that they will incur several thousands of dollars in additional closing costs.
The 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 covering the VA Non-Allowables. It is quite common that with the lender’s help, the additional expenses incurred by the seller would be nothing more than the cost of a termite inspection (which they would often pay anyway).
Solution
Before denying a VA Loan offer, find out if the seller will have to cover any of the VA Non-Allowables (it should be disclosed in the contract or on the VA Addendum). In this market, VA Loans are the closest thing to a sure bet when it comes to mortgage financing. In an industry that is defined by strict and often unflinching guidelines, the VA Loan program has been the most stable and most flexible when it comes to lending standards. In fact, industry studies consistently show that VA loans close at a higher rate than loans using any other method of financing.
The many benefits tied to the VA Loan program (no down payment, no mortgage insurance, reduced closings costs, flexible qualifying guidelines, etc.) present fewer obstacles that can prevent a VA approved borrower from falling out of escrow. Quite matter-of-factly, it may be foolish for a seller to deny an offer from a VA buyer for several hundred dollars in additional expenses.
Mahalo for your time in reading this!
The VA Loan program is a great loan product that many Veterans are taking advantage of in today’s market. We hope this review of the common mistakes will be helpful the next time you have a VA transaction! In the meantime, feel free to give us a call for any VA loan program information you need at 808-792-4251.
