There is an unfortunate sentiment amongst Sellers as well as some Real Estate Agent communities who believe that borrowers with VA financing are more risky than conventional borrowers. This is simply not the case. So, in this article, I’m going to give you 10 reasons why Sellers should accept a VA offer.
Although it is highly unfortunate that there is so much negativity surrounding VA offers, I can prove to you that VA homebuyers are more likely to get to the closing table and with a higher net to the Seller than a conventional buyer. Also, make sure you stay to the end as I give you a Pro-Tip that will guarantee you a better chance of winning your next offer. Let's get to it!
Here are 10 reasons why Sellers should accept a VA offer!
#1 - The VA appraisal cannot come in low without accountability.
A little known fact is that the VA appraiser is held accountable to their value. Additionally, before they can even issue a value below the sales price, they are required to inform the lender and request help from the agents to assist with supporting, if possible, the Sales Price. This is called a Tidewater notice. With a conventional appraisal, you don’t get a warning signal nor a request for help. You have little or no recourse for a bad appraisal. And the appraisal is the reason for the majority of conventional contract cancellations.
#2 - VA appraisals have a better chance to come in at value.
In my experience, and I did 229 VA loans in 2021, VA appraised values are coming in at the Sales Price more often than conventional appraisals.
#3 - The VA loan will not cost the Seller extra money.
Contrary to popular belief, the VA loan does not have extra fees that are billed to the Seller. Additionally, there should be no “silly repairs” requested that could cost the Seller money; however, in the rare case of a non-health related repair listed by the appraiser, the borrower can submit to the VA a letter of consideration for these items to be waived.
#4 - The VA listens to their borrowers.
In the event of a low value, or as in the case of other appraisal issues (like the one mentioned earlier), the Military Member or Veteran can submit to the VA a reconsideration of value. And the VA listens. The result is that the Lender’s Notification Of Value (LNOV) can be adjusted UP! The obvious benefit is less of a chance to have further “price negotiations” after the appraisal is completed.
#5 - VA borrowers have more cash reserves over their down-payment.
In most conventional loans, the buyers are using most of their liquid cash for down payment and closing costs leaving little if no room for the appraisal shortage. Low appraisals on a conventional loan almost every time result in subsequent negotiations ending with lower net proceeds to the Seller. A colleague of mine put it this way… “Since VA loans don’t require a down-payment, the borrower would likely have more cash on hand to help cover any potential appraisal shortfalls.” ~Remi Doyle, Movement Mortgage, Richmond, VA.
#6 - VA loans with down payments are rarely affected by a low appraisal.
Because VA loans allow for 100% financing, this gives even more room for the appraisal to come in low. For example, if you have a VA offer putting 10% down, that means that the home can literally under-appraise by 10% and the lender would still allow for borrowing the same amount. This is not true for conventional loans. In this example, the low value is a material change to financing and the conventional borrower would only have the option of bringing more cash to closing. But, if it’s a VA borrower, the effect of the low value can be ignored. This is one of the main reasons why VA deals don’t blow up with a low appraisal.
#7 - The default rate is lower on a VA loan.
Statistics show that VA borrowers are more qualified, have more stable jobs, and in general, just have their financial house more in order. In other words, a VA buyer has a less chance of canceling a contract than a conventional buyer. If you would like to see statistics on my study on how over 10% of conventional loans cancel after ratification, see my blog post: Sellers beware! Details at the end(1).
#8 - VA loans give you more buying power.
The VA borrower has a lot of wiggle room due the loan guarantee the VA gives the lender. If the borrower doesn’t pay, the VA will pony up to guarantee the lender their retribution. This allows lenders to be much more generous with higher qualifying ratios. Additionally, just like with any type of financing, hiccups invariably show up in the loan process. With a VA loan this probably still won’t blow up your deal. Joy Wood, with Movement Mortgage in Danville, Virginia put it this way.. “Don’t turn down a higher offer from a Veteran. Just don’t! I love working with Veterans. Their intentionality and calculated risk impress me every time. A savvy Veteran and their mortgage team can easily discern the increased buying power of a VA Loan and may use this advantage to make a higher offer than competing “conventional” buyers. The VA Loan option is given to empower home ownership and make housing more affordable to our service men and women. In today’s market, exercising their VA benefits will afford the Veteran the opportunity to offer more for a listing at the same monthly cost as compared to a conventional loan. It is a strategic move, not an act of desperation!”
#9 - Conventional loans materially change with a low appraisal.
I mentioned this earlier, but allow me to belabor this concept. Imagine the example of a borrower putting down 20% on a 500k home. They are borrowing 400k at 4.25%, fixed for 30 Years. The payment is $1967.76 plus an additional $495.83 per month in taxes + insurance for a total payment of $2,463.59. Their budget for the home was stretched due to home prices… a little up from $2400 they desired, but the couple decided this payment is OK. The appraisal comes in low at let’s say $470k (not uncommon when there are escalations over already inflated list prices). Now the borrower has to come up with an additional 30k to keep the same loan terms. But, if the borrower wanted to keep the same loan amount of $400k, the loan would materially change due to the requirement of Private Mortgage Insurance (PMI). This monthly fee would add another $53.57 putting their total payment at $2,517.16 which now becomes a stretch. I would submit to you that low appraisals causing a material change in conventional financing terms will many times lead to a cancellation of the contract, even if the appraisal was waived as a part of the contract.
#10 - Selling to a military family just feels right.
You know I would try to pull on the emotional strings didn’t you? Well personally, if I had two competing offers and they were about the same, I would always pick the military buyer. Why, because I know they deserve it… Period. I hope that all Sellers would prefer awarding their home to someone that has served our country.
Well there you have the 10 reasons why Sellers should accept a VA offer, but before you doze off, let me share with you a Buyer & Loan Officer Pro Tip that will guarantee you a better chance to win your next offer. Here it is:
Buyer & Loan Officer Pro Tip to win more offers!
The Loan Officer should call the Listing Agent.
Make it a point for the loan officer to call every listing agent and explain these simple truths! Sometimes just mentioning a couple will help. Depending on how the conversation goes, your Loan Officer can pull a few of these out and fire away. This is an absolute game changer and it’s the weight that has tipped the scales for my clients to win more offers.
Thanks for sticking with me.
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(1) Article: Sellers beware! Click HERE.