Since its establishment in 1944, the Veterans Administration (VA) home loan guarantee program has helped millions of veterans purchase and maintain homes. This is a vital homeownership tool that provides our veterans with a centralized, affordable and accessible method of purchasing homes as a benefit for their service to our nation. Unfortunately, many real estate licensees are not familiar with the VA process, and some sellers are reluctant to work with buyers with VA loans as they mistakenly believe there are too many obstacles involved with the program.

The VA home loan guarantee is an agreement that ensures the VA will reimburse a lender — such as banks, credit unions or mortgage companies — in the event of loss due to foreclosure. This guarantee takes the place of the down payment. Active-duty servicemembers and veterans with discharges other than dishonorable, National Guard and Reserve servicemembers and veterans with an honorable discharge, certain eligible spouses, and other uniformed service personnel may be eligible for VA home loan guarantee benefits.

VA funding fee

To keep the program viable, Congress instituted a program funding fee, which is a percentage of the total loan amount. This user fee varies based on whether the loan is a first-time or subsequent second or third use of the benefit. The funding fee may be paid in cash or included in the loan at closing. The funding fee can also be paid by the seller, lender or any other party. Certain individuals are exempt and do not pay the VA funding fee, such as veterans receiving VA compensation for a service-connected disability, active-duty Purple Heart recipients, and unremarried surviving spouses of veterans who died in active service or from a service-connected disability. 

Loan amounts

Veterans with their full entitlement available no longer have a maximum guarantee amount. This is true if they are a first-time homebuyer or if they have sold their previous VA-backed home and paid their loan in full, making them again eligible for VA-backing on a home loan regardless of home price and without the need for a down payment. A servicemember can quickly obtain a Certificate of Eligibility (COE) online from the VA website.

Properties that can be purchased

If eligible for a VA-guaranteed purchase loan, a servicemember can use the loan to:

• Buy a single-family home, townhouse or multifamily property up to four units. 
• Buy a condominium unit in a VA-approved project. 
• Buy a home and improve it. 
• Buy a manufactured home and lot. 
• Build a new home. 
• Make changes or add new features to make the home more energy-efficient.

Offers to purchase contingent on VA loans

What are some of the concerns heard from veterans competing with other buyers in today’s market?

1. Listing agents advise sellers not to accept offers with VA loans or sellers refuse to do so; favoritism is shown to other buyers.
2. Misinformation about closing times when the time to close a VA loan is competitive with FHA and conventional loans with an average of 26 days to close.
3. Concerns about the VA escape clause, yet it rarely applies, and eight out of 10 VA loan applications started in the last 90 days closed, exceeding other loan types.
4. Needed repairs relating to safety, health and welfare.

VA escape clause

The VA escape clause with regard to the VA appraisal must be in the offer to purchase, or the VA may not guarantee the loan. Licensees working with VA buyers are best served by including the language in the initial offer because efforts to amend an offer to add the language call more attention to the issue and may be subject to dispute or rejection. The escape clause reads:

It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs. (Authority: 38 U.S.C. 501, 3703(c)(1))

After the appraisal, the VA will issue a Notice of Valuation (NOV) that states what the VA deems is the fair market value of the property. The VA will not guarantee a loan amount that is higher than the NOV. 

One advantage of VA appraisals is that the appraiser is required to notify the requester before completing the appraisal if it appears the value will be below the purchase price and allow two days for any additional market data. The REALTOR^® can help by providing market data. Another advantage is the Reconsideration of Value (ROV) process, whereby the veteran may request a reconsideration, and the REALTOR^® can help by providing market data. The buyer may also try to negotiate an amendment to the offer to change the purchase price or otherwise resolve the discrepancy.

If the fair market value determined by the VA is lower than the purchase price, the buyer can back out per the VA escape clause, or they can opt to pay the price. If the property does not appraise, the veteran would need to take cash to closing for the difference between the appraised value and the purchase price should they choose this option. If they do not have enough remaining entitlement, they can make a down payment to cover part of the loan that exceeds the amount they have in entitlement to support. The inclusion of the VA escape clause does not mean the buyer will automatically terminate the offer if the property does not appraise, as the seller so often assumes. 

Property repairs

The VA guarantee program may indicate that repairs may be needed for the loan to be funded, but these will be only items relating to safety and health and welfare. It is similar to what you would see for FHA and some conventional loans in terms of conditions that need to be addressed before the loans can proceed.

Repairs are only required on about 17% of VA purchases. Cosmetic repairs are not required. Veterans may negotiate and pay for repairs, and they may request a waiver of repairs with the concurrence of their mortgage lender. The property must still be habitable from a standpoint of safety, structural soundness and sanitation.

Honoring our veterans

Encouraging sellers to consider prospective buyers using the VA home loan should be an easy exercise because these veterans have sacrificed for this country and desire the opportunity to use the VA home loan benefit. Because the VA home loan benefit is a lifetime benefit, veterans can approach real estate professionals when they purchase a starter home and later when they want to upgrade. The experience that agents provide can bring veterans back to the VA and back to their agents. As REALTORS^®, it is a privilege to help our veterans and servicemembers secure safe, sustainable housing. 

VA home loan advantages

• No down payment required. (Sometimes a down payment is made to compensate if the property does not appraise.)
• Competitively low interest rates, which are negotiable. (The VA does not set the rates.)
• Limited closing costs.
• No prepayment penalties.
• No private mortgage insurance (PMI) premiums.
• Funding fee paid upfront.
• In the event of a temporary financial hardship, the VA helps in securing alternatives to foreclosure.
• The VA home loan is a lifetime benefit, and the servicemember can use the VA loan guarantee multiple times.

Military Relocation Professional (MRP) certification

REALTORS^® can obtain the Military Relocation Professional (MRP) certification to be better prepared to work with current and former U.S. military servicemembers, their families and veterans. MRP training educates REALTORS^® on how to help military homebuyers find the best housing solutions to meet their needs and take full advantage of available benefits. Learn more: www.wra.org/MRP

Additional information

• VA Home Loans Video Part One: VA Loans 101: Check out the advantages of the VA Home Loan Guaranty Program and how REALTORS^® can help veteran homebuyers successfully use VA loans. www.wra.org/VA/LoansPart1 
• VA Home Loans Video Part Two: Reducing Barriers for VA Borrowers examines misconceptions about the program and solutions to challenges experienced by REALTORS^®, buyers and sellers. www.wra.org/VA/LoansPart2
• VA Loans Give Veterans the Hope of Homeownership, the American Dream: www.wra.org/VA/NAR
• VA Home Loan Guaranty Buyer’s Guide: www.wra.org/VA/BuyersGuide
• VA housing assistance: www.wra.org/VA/Assistance