VA Loan no guarantee to buying a home

By Fred Davis

Laurie Lopez is exasperated with her family’s home search.

She and her husband John, a 4-year veteran of the United States Navy, are both in their early 30s, have good credit, good jobs and have already been approved for a $225,000 home loan by their mortgage company.

Problem for them is, they’re trying to use a VA Loan to purchase the family’s first home.

“We’ve probably looked at over 100 homes,” Lopez said of the family’s five-month search in the Corona. “We lost out on the last property we bid on because we were using a VA Loan,” Lopez said. And they had the highest bid according to Lopez.

“People don’t want to mess with the inspections,” Lopez said of seller’s disinterest in selling to buyers using a VA Loan, “too much red tape.”

Lopez said they decided on a VA Loan because, for starters, John earned the VA benefit as part of his service to the United States and was honorably discharged. The VA loan is available to veterans, active duty service members and reservists.

The Lopez’s also liked the idea that there was no down payment required – although they have money for a down payment – and there’s no private mortgage insurance, which they would incur unless they put 20 percent down when purchasing a new home with a conventional mortgage.

They’ve also been approved for an FHA loan, however an FHA loan requires a 3.5 percent down payment as well as monthly mortgage insurance – both of which are not required with a VA loan.

Bryant Lacey, who works in the loan administration department at the VA Regional Loan Center in Phoenix, which includes California in its jurisdiction for regulating VA Loans, admits he’s heard complaints that the VA Loan involves too much “red tape” and that it’s too bureaucratic, but he said those critiques are outdated.

Lacey said the problem with sellers is a lack of information about the VA Loan product.

“Realtors and lenders don’t know the guidelines,” Lacey said.

Over the past 18 months, Lacey said the VA has converted to an electronic reporting system that is accessed by loan servicers, which, in theory, are supposed to help expedite the loan process.

“We’ve tried to streamline the process,” Lacey said.

But Richard Gregg, a real estate agent and loan officer in Corona, said he’s not so sure. He points to a borrower that his company, Oreoit LLC, was working on a VA loan with that finally closed last week – after they started the process in February.

“It usually takes 30-40 days,” Gregg said of closing a deal without using a VA loan.

Gregg said he doesn’t have anything against the VA loan, and he’s seen a few working as a seller’s agent, but has never been through the process himself working as a buyer’s agent. However, from his ten years of experience in real estate and working with others at his company who have dealt with the VA loan, a seller accepting a VA loan comes down to preference.

“They can be very cumbersome,” he said of the loan, “and with a VA appraisal, if repairs are necessary, the seller has to ask themselves, ‘Do I want to put any more money into this property?’”

And in a case like the Lopez’s, where they put down a higher bid on the home they wanted, Gregg said the seller probably received either a cash offer or a conventional loan offer, meaning they wouldn’t have to go through a VA appraisal and they could close the deal on the house faster.

“Without knowing the property, the sellers were probably done putting money into the property,” Gregg said. “Bringing a house to VA or FHA standards can be frustrating.”

In Northern California, the VA loan still has its quirks, but it appears they’re getting a bit more traction than they are in Corona.

In San Leandro, 20 miles southeast of San Francisco, real estate agent Shokoofeh Nowbakht has also been working with a client since February on closing a VA loan. While Nowbakht confirms that it’s taken “a little longer” than she’s used to, she’s glad to be helping a veteran become a homeowner.

“We’ve run into a couple things along the way, but it’s been a team effort the whole time in getting this loan to close,” Nowbakht said, referring to the seller, in this case a bank, plunking down $25,000 in repairs to fix termite damage and the house’s foundation. “You don’t see that very often,” she said of the bank paying to fix the repairs.

Nowbakht said she expects to see the loan close next week, even though she’s had to extend the closing date twice in light of repairs needed to the older 2 bedroom home in San Leandro that went for $250,000, a very low price for a home that size in the Bay area. Now she’s waiting on the appraiser to come back and give a thumbs up to the re-painting of the fence, which is the final obstacle before closing.

“I like the VA loan,” Nowbakht admits, “but I would like to see the VA lighten their guidelines. I know they’re protecting the buyer, and I have no problem with that, but sometimes you run into problems where a repair is needed and it’s uncertain who is supposed to pay for it.”

In Nowbakht’s situation, both she and her client have had to pay for repairs out of pocket on a house that technically isn’t the buyer’s yet, and that can be a problem if the loan doesn’t go through. While that doesn’t appear to be the case this time for Nowbakht, she said that this experience with a VA loan – her first – will better prepare her for the next VA loan.

“I’ll have to be more selective with the houses I show to someone using a VA loan,” she said. “I hope it doesn’t get impossible for people to use a VA loan around here.”

The VA loan limits for San Francisco and San Mateo counties is $1,094,625. The VA loan limit for Riverside County, where Corona is located, is $417,000, the standard VA loan limit.

Brian LeBars, a mortgage broker in Pleasanton, just southeast of Oakland, has been doing business in the Bay area since 2001. He said he’s seeing more VA loans in the last year as more and more veterans are returning to the area.

“The business is shifting back towards government-backed loans,” LeBars said, adding he originates both VA and FHA loans.

LeBars said the VA loan is a good product, although it may not be the best product for everyone. In terms of seeing VA loans getting turned away, he said it can happen but that it really depends on what the lender or seller is looking for.

“It could be a poorly-written pre-approval letter, the buyer may have a low (credit) score, the agent might not be used to VA, it could be a number of things,” LeBars said as to what can lead a seller passing on a VA loan offer.

As for Laurie Lopez, the family continues their house search and the plan is to be in a home by this summer, but a lot will depend on whether a seller accepts a VA Loan.

“I want to be in a home this year,” Lopez said with a tinge of desperation in her voice. She adds that she and her husband will continue to shop with their VA loan, but if the search drags on, they may consider using an FHA loan. But Lopez is hoping it doesn’t come to that.

“I just wish somebody would show the VA loan some love,” she said.