Buying a Short Sale With a VA Loan
Know Before You Go
Whether you find the short sale property on your own or through a real estate agent, make sure you gather as much information about the property as possible beforehand. It is important to know the condition of the property and if the sales price has or has not been approved by the seller’s lender. In most cases, the seller has contacted a real estate agent to list the property for sale, but has not received lender approval for the sales price. We have even seen real estate agents list a home for sale at a very aggressive price in order to generate more buyer interest in the property. Only in some cases will the sales price be approved by the lender because a previous sales contract on the home was accepted by all parties, but the contract had later fallen through. Short sale property listings that have a lender approved sales price will generally list the approved price in the property listing. Before making an offer when buying a short sale with a VA loan, it is important to know that once your offer is submitted, it may take as short as a few days or as long as several months for the offer to be accepted by all parties. Because the listing price of a short sale does not always reflect what the lender is actually willing to accept, all parties still have to agree upon a sale price. If a short sale on the home was not previously approved, the lender may require feedback from the listing agent or an independent third-party to determine the condition and value of the property. This process to evaluate the home can take weeks or even months to complete. Once the lender has completed their evaluation of the home, all parties must agree upon a sale price. The seller typically agrees to any offer made by a buyer, but the lender must also approve the offer since they are the party being paid less than owed on the home.
Making an Offer When Buying a Short Sale with a VA Loan
When buying a short sale with a VA loan, it is best to have as few contingencies attached to your offer as possible. Making your offer contingent on selling an existing home, asking for closing costs, requiring repairs or not being flexible on a closing date (too soon or too far out) may cause your offer to be denied by the lender. If the home is in good condition, located in a desirable area or multiple offers are expected from buyers because of an aggressive sales price by the listing agent, be prepared to offer more than the list price. Also, be prepared for the lender to impose strict deadlines for financing, due diligence, completion of inspections and closing. These deadlines, especially closing, are generally very inflexible regardless of the buyer’s circumstances or findings during inspections. Because the lender is accepting less money than what is owed on the home, the lender wants to unload the property as quickly as possible, but they will not do it at the expense of deadlines being missed by the buyer.
Once an offer is accepted by all parties to the short sale, it is imperative that all of the contract deadlines are met and the necessary appraisal, inspections and any repairs are completed on time. If you are buying a short sale with a VA loan in an area you are not familiar with, your real estate agent generally will have established relationships with reputable companies who can perform required inspections and repairs if needed. Working with a loan officer that has experience helping National Guard members and veterans buying a short sale with a VA loan will ensure that you meet financing, appraisal and closing deadlines according to the sales contract.
Inspections & VA Appraisal
The seller of a home that is being offered as a short sale is generally no longer able to make their monthly mortgage payments. A seller will often neglect home maintenance or some form of property damage has occurred. We always advise borrowers to get a home inspection from a qualified home inspector for any home they are seriously considering buying. Having a home inspection done will assist with determining the condition of the home and if repairs are minimal or substantial. In addition to a home inspection, you may be required to complete a pest, sewer or well inspection per Veterans Administration guidelines. Each of these must be performed by a licensed professional and can add hundreds of dollars in costs before any needed repairs are ever completed. An appraisal by a VA-approved appraiser will be required to determine the home’s value and to ensure that the home meets the Veterans Administration’s cosmetic and safety requirements. Short sale homes with physical or cosmetic damage will have to be repaired prior to a final appraisal inspection report being issued by the appraiser. If repairs are required, a re-inspection of the property must be completed by the appraiser at a cost to the buyer.
If repairs to the home are required, repairs must be completed by a licensed professional and you may be required to pay the costs out of pocket. Repairs can range from simple cosmetic fixes to major repairs like termite or structural damage costing thousands of dollars.
Although there are certain risks associated with buying a short sale with a VA loan, there are several actions you can take to save you time and money. One of them is working with the right loan officer to help you find the right professionals, coordinate and complete inspections that could save you thousands of dollars and help you avoid stress when buying a short sale with a VA loan.
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