Why Do Sellers Not Like VA Home Loans?

The Department of Veterans Affairs (VA) home loan program provides a benefit to eligible service members, veterans, and surviving spouses, facilitating homeownership. These loans are guaranteed by the VA but issued by private lenders, offering competitive interest rates and often requiring no down payment. The program expands access to homeownership, including flexible credit underwriting guidelines and no private mortgage insurance (PMI).

Property Requirements and Valuation

VA loans include specific property standards known as Minimum Property Requirements (MPRs), which ensure the home is safe, structurally sound, and sanitary. These requirements can be more stringent than those for conventional loans, covering aspects like structural integrity, safety, and sanitation. If a property does not meet MPRs, necessary repairs must generally be completed before the loan can be approved and closed. This can create concerns for sellers, as they might incur unexpected repair costs.

The VA appraisal process evaluates the property’s condition and determines its fair market value. A VA-approved appraiser assesses the home to ensure it meets MPRs and establishes its market value. If the appraisal comes in lower than the agreed-upon sale price, the buyer may need to cover the difference in cash, the seller might need to reduce the price, or the transaction could fall through. This potential for a lower-than-expected appraisal, along with the requirement for certain repairs, can be a point of hesitation for sellers, particularly in a competitive market.

Loan Costs and Fees

VA loans have specific rules regarding closing costs and fees, some of which can impact sellers. While many closing costs are typically the buyer’s responsibility, VA guidelines limit what buyers can be charged directly, designating certain fees as “non-allowable.” Some costs, such as real estate brokerage fees for the buyer’s agent or certain attorney fees, cannot be paid by the veteran buyer and may fall to the seller. Sellers can agree to pay all of a buyer’s loan-related closing costs.

VA rules allow for “seller concessions,” which are items of value contributed by the seller that are not standard closing costs. These concessions are capped at 4% of the loan amount and can include payments for the VA funding fee, prepaid property taxes and insurance, or paying off buyer debts. Sellers can agree to cover the VA funding fee as part of these concessions. The need for sellers to potentially cover non-allowable fees or provide concessions can reduce their net proceeds from the sale, making a VA offer less financially attractive compared to a conventional offer.

Processing Timelines and Perceptions

VA loans are often perceived to involve longer processing and closing times compared to conventional loans or cash offers. While some sources indicate that VA loans can close in comparable timeframes to conventional loans, especially with experienced lenders, others acknowledge that the VA appraisal and potential repair requirements can sometimes introduce delays.

Coordination among multiple parties, including the lender, VA-assigned appraiser, and potentially contractors for repairs, can influence the overall timeline. For sellers seeking a quick closing, particularly if they are simultaneously purchasing another property or managing multiple offers, perceived or actual delays associated with VA loans can be a concern. Some sellers may still hold outdated misconceptions about the complexity or efficiency of VA loan processing.