On this, our Independence Day I want to call out to all involved in the real estate industry for your help. As the wars in Afganistan and Iraq wind down for our U.S. troops, soldiers are returning home, reuniting with their families and looking for homes. They are being rejected by Realtors, banks (short sale lender and banks selling foreclosures), and sellers because of their utilization of the VA loan.
What is the hang up? VA loans have a couple of unique requirements which make it difficult to get an offer accepted.
- A VA loan can take 30-45 days to close escrow. This is about 15 days longer than a conventional or FHA loan.
- A VA loan requires the seller to pay for all section 1 (and sometimes section 2) wood destroying pest work and it must be completed prior to close of escrow. Section 1 items are considered “active infestation” either by water or pest, actively destroying the structure of the home. There was a time where ALL loans required this clearance, but now, the Veteran Affairs Administration is one of lenders holding on to this requirement.
- A VA loan also requires the seller to pay for buyer’s closing costs outside of pre-paids for interest, insurance, and taxes.
In the Santa Clara Valley area which includes cities like San Jose, Mountain View, Campbell, Los Gatos, Milpitas, Santa Clara, Sunnyvale, Saratoga, Palo Alto, Morgan Hill, and Gilroy, the demand for homes is much higher than the actually inventory of homes available for sale. We are starting to hear in the media how the average sales price for a home in the Bay Area is climbing. I have personally not written an offer on behalf of a client in the last six months that was not part of a multiple offer situation. We simply do not have enough homes for sale to meet the demand of the buyers.
The low inventory affects all buyers and the competition is tough. We are seeing buyers writing NO contingencies to compete with all cash. This is a very risky maneuver and will result in more legal cases than any of us want to see. Banks in particular who are reviewing offers for short sales and foreclosures are routinely rejecting offers by FHA and VA buyers. Investors with all cash made up 23% of all homes purchased in California in the first quarter of 2012.
I do not know of a single veteran that wants special treatment. These are individuals with high character and pride and simply want to find a home for their family. The VA loan is one of the few service benefits they receive.
As Realtors, we should do our part to help these veterans buy homes. We should explain the requirements to our sellers in a way that allows our sellers to understand the minimal impact these requirements truly make on the transaction. In most cases, the buyer’s closing cost are slightly less than 1% of sales price. In many cases, section 1 work is less than $5000 and there are many ways to manage that cost even lower and still satisfy the VA underwriter.
Bank sellers, what better public service than to be the leader in helping veterans buy homes? With so many foreclosures and short sales coming, why not create a program where a percentage of homes go to veterans as first look? This is not an unheard of idea, as many banks already offer homes through the FANNIE MAE first look program to help buyers who plan to occupy homes as their own a chance to bid before investors begin their offers.
For all veterans seeking a home, I will do all I can to help you buy a home. My commitment is sincere and I will put my money where my mouth is (or in this case on the keyboard) and offer 1% of my commission toward section 1 work and/or closing costs. Contact me if you have specific questions about the buying or selling of homes under the VA programs.