For particularly price-conscious military buyers, VA loans can be used to purchase foreclosures or short sales as long as the properties still meet the VA home loan guidelines set by the Department of Veterans Affairs.
However, distressed property sales can offer unique challenges in this regard. Consider these tips for buying distressed properties with VA loans:
All properties in consideration for VA financing must submit to a VA appraisal, which compares properties against a list of Minimum Property Requirements (MPRs). Homes that fail to meet each MPR can't be approved for VA financing.
MPRs aim to secure well-built, economically sound homes for veterans. Homes must be move-in ready and free of safety hazards. Some requirements include:
Distressed properties can have a hard time living up to MPRs. Foreclosures and short sale properties may not have been properly maintained by previous owners, and bank-owned properties are frequently sold “as is,” with zero tolerance for repairs.
The bottom line? Focus on quality homes that are already in good condition.
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Pristine foreclosures and short sales are out there, but they can be tough to locate.
Use all available resources to quickly pinpoint distressed properties that can easily pass the VA appraisal.
Identifying cooperative sellers is also a tool of the foreclosure trade. Obliging banks can simplify the VA loan process by agreeing to bring distressed properties up to MPR standards.
Assessing the value of a distressed property can be difficult for both agents and appraisers. A volatile market or a neighborhood full of foreclosure sales can make it tough to agree on a home’s value.
It’s best to use caution when evaluating distressed properties. The VA appraiser will use comparables that reflect “typical transactions” for the market, which could certainly include other distressed property sales. Distressed property comps can drag down your Comparative Market Analysis value, but they may need to be included for the purposes of a VA loan sale.
Luckily, VA loan buyers have recourse for erroneously low appraisals . The VA’s reconsideration of value option allows buyers to petition for a secondary appraisal. If your buyer can show that pertinent information was not used in the initial appraiser’s report, a second appraisal may be granted.
Agents know that there’s nothing short about a short sale, and that buying an REO can be a tedious process.
Buyers also need to understand that buying a foreclosed property can be more complex. Informed buyers are satisfied buyers, so be sure to explain the complications involved and how VA loan requirements will come into play.
Military borrowers who are on a strict timeline for purchase may be better off aiming for a more traditional homebuying process . But for those who can be patient with the process of buying a foreclosure , a steal of a home may be just around the corner.
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