VA limits VA loans

VA Home Loans: When the Asking Price is Different Than Fair Market Value

December 27, 2010

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VA Home Loans: When the Asking Price is Different Than Fair Market Value

House hunting can be tricky. One situation many VA loan applicants find themselves in comes when the seller offers a price on the home that is higher than the VA Notice of Value. Experienced house hunters and more confident first time home buyers often don’t have a problem negotiating the price; some people enjoy haggling and consider it a crucial part of the home buying process.

But what happens if, once the negotiations are over with, the price of the home is still higher than the VA Notice of Value?

VA rules prohibit the Department of Veterans Affairs from guaranteeing a loan for an amount higher than the fair market value of the house plus approved extras like closing costs, energy efficient improvements and other approved items. If the home is appraised for less than the selling price, the veteran must decide whether to pay the additional amount out of pocket or back out of the deal.

Some people read that information and think they may have found a loophole where they could get cash back on the sale–what happens if the asking price is lower than the fair market value of the home?

In these cases the VA will guaranty a loan for whichever amount is lowest. If the home is appraised for $300,000, but the asking price is $275,000,  the VA won’t lend $300K, it will approve the lower asking price of the home instead.That’s an important thing to keep in mind in an age where home equity loans and ad campaigns for such loans have, in the past, led people to view a home as an investment that can be cashed in on later.

Those who still want to buy the home even though the asking price is higher than the fair market price as established by the VA can still get a VA home loan, but they must pay the remainder of the asking price out of pocket. The buyer does not have to walk away from the deal, but can’t rely on the VA mortgage to cover the entire cost of the home.

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