Buying a Home With a VA Insured Mortgage
In our previous blog post, we covered some of the basic steps needed to start house hunting and what to do when you find a property you want to make an offer on.
To buy a home with a VA insured mortgage, borrowers should make an offer, come to an agreement with the seller, and be prepared to sign paperwork committing to the sale of the property.
The buyer should make sure that paperwork includes (or is amended to include) protective clauses stating that the buyer “shall not incur any penalty by forfeiture of earnest money or otherwise of 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.”
The buyer should also make sure there is an escape clause in the purchase agreement stating that he or she may withdraw the offer without penalty if the VA home loan is denied for any reason. Some also advise the borrower to include language referencing a VA appraisal. Should the property fail to be approved for a VA loan or require extensive fixes, does the purchase agreement cover those contingencies?
Once you’ve found the house you want, make the offer and sign the purchase agreement, it’s time to formally apply for the loan. In many cases it’s a very good idea to apply for VA loan pre-approval long before you get to the purchase agreement stage with a seller.
Being pre-approved means knowing how much loan you could be approved for, which eliminates properties at the high end of the market that aren’t affordable based on your general loan amount and any down payment you can afford.
Once the actual loan is approved, the lender will order a VA appraisal on the property you’ve committed to purchasing. An appraisal should not be relied on to give the borrower a stamp of approval for the entire property.
As the VA official site states, “VA’s appraisal is not a home inspection or a guaranty of value. It’s just an estimate of the market value on the date of the inspection. Although the appraiser does look for obviously needed repairs, VA doesn’t guarantee the condition of the house. The appraiser, who is licensed, is not a VA employee. The lender can’t request a specific appraiser; assignments are made on a rotating basis.”
Once the lender has finished reviewing the results of the appraisal and the borrower’s credit application, when the loan is approved a closing date can be set. According to the VA, “The lender chooses a title company, an attorney, or one of their own representatives to conduct the closing. This person will coordinate the date and time” of the closing and title transfer to the VA borrower.
Those are the basic steps toward purchasing a home with a VA loan. There are plenty of nuances along the way you may encounter, but these are the typical milestones of the journey.
About Joe Wallace
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association.