Tables of Contents
VA Appraisals | VA Non-Allowables | Appraisal/Escalation Clauses | Seller Credit | VA Condo Approval
Whether you are assisting military home buyers directly or representing a seller that has received offers with VA financing, it is good to have a working knowledge of this popular program.
The VA loan is processed and approved much like a conventional loan with a few differences. These are the most important factors to know when working with a VA buyer or when your seller is considering a VA offer:
The VA loan program does not require a down payment but that does not mean the VA buyer is any less qualified than a conventional loan buyer.
In many cases, the VA buyer may be more qualified than conventional buyers, especially those with less than 20% down. VA guidelines allow for more flexibility in credit and income requirements, making it easier for the lender to approve.
VA Appraisals – Positive Updates
The Veterans Administration revised its rules regarding real estate appraisals. VA appraisers treat un-permitted additions and non-permitted areas the same way as conventional appraisers.
The appraiser comments on the condition of the un-permitted area but does not include the area in the market value of the property.
There is no longer a requirement to have the un-permitted area fully permitted or restored to its original condition.
The VA appraisal process is more efficient as VA implemented a requirement that appraisers complete the report within 14 days of receiving and accepting the appraisal order from the lender.
VA appraisers can now complete a report pending receipt of condominium documents, if applicable. Previously, appraisers held the appraisal report until receipt of condo docs.
VA Non-Allowables, Real or Rare?
There are no additional VA closing costs or fees that a seller is responsible for paying on behalf of a VA buyer, in most cases.
The VA stipulates that the Veteran can only be charged 1% of their loan amount in loan origination fees.
As long as the buyer fees remain under 1%, then there are no VA non-allowable fees that the seller would be responsible for paying.
The VA buyer can pay discount points buy down the interest rate. These points do not count toward the 1% closing fee cap.
If the buyer’s VA lender charges a 1% origination fee, then many other lender and escrow fees become non-allowable because they would all exceed the 1% cap. This is the only scenario where the buyer would need to ask the seller for credit to cover the VA non-allowable fees.
Most local Hawaii VA lenders do not charge a 1% origination fee but there are still some that do (such as Navy Fed and USAA).
To avoid surprises, inquire with the buyer’s agent to ensure their VA lender does not charge 1% origination fee before accepting their offer to purchase.
Appraisal and Escalation Clauses
Both the appraisal clause and escalation clause are allowed on VA purchase agreements.
You can insert an “appraisal clause” in a VA offer, indicating to the seller that your VA buyer is willing to make up for an appraisal shortfall in value of the appraisal comes in lower than the sales price.
The appraisal clause shows the VA buyer is willing to make up a shortfall up to a certain amount. However, due to language in the VA Addendum, the VA buyer can still decide to cancel the contract if an appraisal comes in lower than the sales price. This is rare but it has happened.
Most VA buyers follow through on their agreement but keep in mind they are not contractually obligated to do so based on the VA Addendum/Escape Clause, which supersedes the purchase agreement.
VA Escalation Clauses
In competitive situations, you can add an “escalation clause” to a VA buyer’s offer if you want to give your buyer the best chance of acceptance.
This way, you can indicate to the seller that the VA buyer is willing to come in at a sales price $XXXX more than the next highest offer.
A cap to the total sales price is recommended to reduce the possibility of an appraisal issue.
Seller Credit & Special Terms Language
You can ask for up to 4% of the sales price to be credited to the VA buyer as part of an offer to purchase.
This is helpful in the current market where sellers are more willing to negotiate. Seller credit can be used to pay for the 2/1 Temporary Buydown or buy down the Veteran’s interest rate.
Additionally, seller credit can be used to cover buyer closing costs or even debt paydown/payoff to help the Veteran qualify for the loan.
The seller credit can be applied to buyer closing costs, discount points, pre-paid items like most other loan types. Unique to VA, seller credit can be applied toward existing revolving or installment debt.
The way to write this in special terms is as follows, “Seller to credit buyer $XXXX through escrow at closing to be used toward buyer closing costs, discount points, pre-paid items and any other item as determined between buyer and lender per VA guidelines.”
VA Condo Approvals & Site CPRs
VA requires that all condominium projects, including site CPRs are approved for VA financing prior to closing. Check Condo VA Approval List Here.
There is a system in place so unapproved condo projects can be reviewed and approved during a 45 day purchase transaction.
The Veteran’s lender takes the lead in submitting the condo approval package to VA. To help facilitate approval, the seller’s agent should order condo docs immediately upon contract acceptance.
Not all VA lenders (usually large bank and credit unions) will submit the required documents for VA condo approval. Verify your buyer’s VA lender will accommodate this request if your buyer is looking at non-VA approved condos or site CPRs.
Whether your seller is considering a VA buyer’s offer or you are working with VA buyers to help them realize their dreams of home ownership, you have the additional tools to understand some of the unique aspects of this very beneficial loan program.
Work with reputable and knowledgeable Hawaii VA lenders to ensure the loan is processed and closed in a timely fashion.
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