How to win with a VA or FHA Loan

It’s hard out there for buyers right now, and even more so for buyers using government-back loans such as VA and FHA. When navigating a competitive housing market, it might be beneficial to think of the list price of the house as the reserve price at an auction. It’s the minimum the seller will accept in many cases. Today, the asking price is often becoming the floor of the negotiation rather than the ceiling. Buyers with VA or FHA loans, buyers without a lot of cash to offer, and buyers asking for seller paid closing costs are at a severe disadvantage. In fact, in many markets and price points it is almost impossible to compete against cash offers or conventional financing. So how do VA and FHA buyers win?

Winning Strategies

• Experienced realtor
  • Having an experienced realtor on your side can mean the difference between winning and losing a contract. An experienced realtor will negotiate hard on your behalf, and will have the tools to help you write a competitive offer.

• Reputable, local lender
  • Using a reputable, local lender can significantly strengthen your offer. Certain lenders are known to “close deals” and likewise, some are known to string things along. Having a local lender who knows our market can help make your offer stand out above the rest.

• Be flexible
  • It’s more important now than ever to have an open mind, flexibility, and some patience! Most homes are seeing multiple offers and are under contract within days, so not being too picky will certainly help your odds.

• Consider new construction
  • New construction goes fast, but you don’t have to compete in bidding wars. While you may pay a little more and have to wait for the home to be completed, you will also have more customization options.

• Look for homes that have been on the market 30+ days
  • These homes may have less competition since they’ve been sitting on the market a little longer. You may have more negotiating room than you think, and a government backed loan shouldn’t be an issue.

• Look for homes that need minor updating
  • These homes may get looked over simply because they need some updating. If the home has “good bones” but is a bit outdated, it can be a great opportunity in this swift market. If you’re willing to do some painting and/or remodeling yourself, this strategy could help you gain instant equity and you’ll avoid overpaying for your home.

• Put more money down (if you can)

• Switch to conventional (if you can!)
  • You can always try refinance later

• Offer an appraisal gap 
  • If you have some extra cash, you can offer cash to make up for an appraisal shortfall.

• Only ask for health/safety items on an inspection
  • This market is not the time for you to be too picky on an inspection. In fact, many buyers are putting it right up front in their initial offer that they will only request health/safety repairs.

Why do sellers try to avoid FHA or VA versus cash or conventional?

• Takes longer for appraisal
• Pickier appraisals
  • The appraisal process can be more strenuous because the government is backing the loan. They will want to ensure the value of the property measures up the loan. For sellers who want to sell quickly and easily (which is most of them), this can be another downside.
• More hassle
  • Cash offers are a lot less work to close because lending requirements are not involved.
• VA loan escape clause
  • The VA Loan Program features an “escape clause” that permits the borrower to walk away from a home loan penalty-free in cases where the appraised value is lower than the asking price. The VA and the lender cannot force the borrower to come up with the difference in cash to complete the transaction. The borrower cannot be financially penalized for doing so in these cases. Even if the purchase agreement does not specifically contain language providing the escape clause, it must either be added to the loan agreement or the VA commitment in this area must be honored regardless. **Typically, this is ideal for a VA buyer, but when it is a seller’s market, it can actually hinder their chances of winning a bid on a home.

Thinking about buying? Not sure if what type of loan you qualify for or what the best route is for you? Please contact us and let the experts negotiate hard for you!