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Veterans’ Guide to Buying a Home in Short Sale

Many viable properties become bank-owned when homes are surrendered or foreclosed upon. Also, financially-distressed homeowners who are struggling to pay their mortgage and/or are “underwater” – meaning, they owe more on their mortgage than their home is worth – need a way to sell their property and it comes time.

A short sale is a way these properties get transferred to new owners. Often, the new owners get an unbelievable deal. More often, potential homeowners get tripped up in the short sale process and waste time and money chasing their dream.

Here’s a guide to the short sale process taking into consideration the financing opportunities available to veterans.

What is a Short Sale?

A short sale is a sale of real property for less than the total amount in liens. Simply put, the property sells “short” of its encumbrances.

Why Would I Buy a House at Short Sale?

Often, distressed properties become available at the short sale that would otherwise be too expensive for the buyer pool attracted by the short sale price. There are some deals to be had, certainly.

How Do I Buy a House at Short Sale?

First, you have to identify potential short sales.  This can be done easily by contacting a local realtor, identifying the neighborhood or school district you wish to purchase in, and establishing the size and type of property you want (single-family? How many beds/bath? Lot size?).

Next, tour potential properties with your realtor.  Take notes.  Compare and contrast the available properties that meet your parameters.

Then, do some research. All liens and mortgages on real property are a matter of public record, so you should look them up. Look up the tax history and whether there are any boundary disputes, easements, or underground oil tanks on the property.

Once you’ve decided which property you want to put a bid (or bids) on, the next steps are to secure financing and make an offer to the lender who owns the property.

Financing a Short Sale for Veterans and Active Duty Military

Veterans are eligible for VA home loans, which require no initial down payment, offer favorable interest rates, and are easy to qualify for. VA loans are issued by private lenders and guaranteed by the U.S. Department of Veteran Affairs (the VA). For this reason, those holding VA home loans are not required to take out private mortgage insurance.

The disadvantage of a VA loan is that there are guidelines and requirements a property must meet to be eligible for VA loan financing. A VA appraisal must be done to see if the property meets the “Minimum Property Requirements,” or MPRs, which include:

• All mechanical systems such as heat, electric, and plumbing, must be safe and usable;
• The roof must be in good repair;
• Crawl spaces and basements must be dry;
• No termites, dry rot, or fungus;
• No lead paint.

Your real estate agent should be able to help you find homes that meet these requirements and steer you away from those that do not.

The Downside of Short Sales

Slow Response from Lender:  Short sale negotiations between a potential buyer and a lender can be protracted and negotiations often fail and the deal falls through.

Condition of Short Sale Property:  Short sale properties are sold “as-is” and many do not meet the requirements for a VA loan. A buyer making repairs to a home prior to purchase in order to secure VA approval takes the risk that the purchase falls through.

Mortgage Interest Rate Changes: Even if the property meets VA home loan standards, a lender may take 60 days or more to respond to a buyer’s offer, during which time mortgage interest rates may go up, or down.

Is a Short Sale Right for Me?

If you are a veteran looking to buy a house and are willing to tolerate a long negotiation process and the risk that your offer will not be accepted, that the deal may fall through, or that interest rates may rise while you wait for the lender’s decision, you can take advantage of the steep discount a short sale can offer. If you are risk-averse or otherwise cannot wait to purchase a home, a short sale is probably not for you.

Don’t forget to manage your stress!

Active duty military members and veterans experience a high rate of PTSD with as many as 34% suffering from this debilitating condition as well as other mental health issues, including addiction, anxiety, and depression. Our friends at OnlineTherapy.com have therapy services tailored for veterans. They recently published a new resource that dives into veteran mental health care and shares the most effective, affordable, and convenient online therapy services for veterans.

About the Author

Veronica Baxter is a blogger and legal assistant living and working in the great city of Philadelphia. She frequently works with busy Philadelphia bankruptcy attorney David M. Offen, Esq.

Free Resources

Re-shared with permission from Emily Huddleston at Redfin

For most people, buying a home is an exciting and emotional milestone. This can be especially true for veterans, who have likely spent years traveling between bases, and are looking for a place to finally call their own.

While the home buying process can be overwhelming, there are many resources available to make it simpler and more affordable for those who have served in the military. If you’re a veteran or active military personnel and you’re starting the quest for your new home, be sure to first consider these seven important home buying tips.

1. Understand the VA home loan

Most veterans are eligible for a VA home loan, which is provided by private lenders but backed by the U.S. Department of Veterans Affairs. “Like any homebuyer, veterans eligible for the VA home loan program should shop around to different lenders to find the best mortgage for their needs,” said Redfin chief economist Daryl Fairweather.

A mortgage that requires $0 down, VA loans are a competitive and affordable way for veterans laying down roots to save. Credit requirements are looser than traditional mortgages as well – a bonus for those who don’t have a long credit history. Further, VA loans don’t require private mortgage insurance (PMI) – a typical form of insurance for those who can’t put down 20 percent.

In the past, there have been caps on the size of VA loans offered. However, starting January 1, 2020, a new law will eliminate VA loan limits, allowing veterans to buy higher-value homes. Additionally, funding fees are required with VA loans, which are not generally included in standard mortgages. However, the fees serve a good purpose as they go directly to the Department of Veterans Affairs to pay the costs of the program. In 2020, the funding fee will be 2.3 percent of the total loan amount for the first use and 3.6 percent for additional uses. You can pay for this fee upfront or roll it into the loan. Before moving forward, be sure to review the loan requirements and ensure you’re eligible.

Learning the basics of a VA home loan and how to properly use your military benefits are just small pieces of the mortgage process. To better understand how to maximize the use of your benefits, speak with a qualified mortgage lender to discuss what works best for you.

2. Explore all of your lending options

VA loans are great for those who are looking for a loan with no down payment and limited closing costs. However, there may be instances where other loan options are a better fit. Additional lending options include:

• FHA loans: Like VA loans, an FHA loan allows veterans to buy a home without the need for great credit and large down payment. While FHA loans have some cost-saving advantages, they usually can’t match those of a VA loan. However, if your credit score is in the 500s, you likely won’t qualify for a VA loan. In this case, an FHA loan is a great option.
• USDA loans: If you’re looking to buy a home in a non-urban area of the U.S., you may qualify for a zero-down loan backed by the U.S. Department of Agriculture. USDA home loans allow buyers to secure these mortgages as long as the property is within a qualified area. If you qualify as low- to moderate-income and can’t qualify for VA loan, consider a USDA loan instead.
• Conventional loans: These are the most common type of home mortgages for the general public. Unlike an FHA or a VA loan, conventional loans aren’t backed by the government. Credit requirements and financial standards for conventional loans tend to be more limited. However, those with excellent credit and stable assets can often get great rates and terms.
• Native American Direct Loans: This program is specifically for qualifying Native service members to use VA loan benefits for housing on federal trust lands. Veterans who are not Native American, but who have a Native American non-military spouse, may also be eligible for a loan under this program. Unlike the traditional VA loan, NADLs come straight from the government and don’t involve a third-party lender.

3. Focus on credit

VA loans have looser credit requirements than traditional mortgages, but this doesn’t mean that credit is ignored entirely. Homebuyers do need a credit history of some sort with more positive than negative indicators. Check your score regularly to ensure your current actions are building and not hurting your credit. You can get one free copy of your credit report every 12 months at AnnualCreditReport.com.

4. Look into other financial resources

There are a number of other home buying grants and programs offering financial resources to veterans, including:

• Dream Makers Program: This program provides qualified veterans and active duty service members grants for down payments and closing costs. The Dream Makers grant is based on a 2-to-1 match of what the homebuyer contributes towards the purchase.
• Adapted Housing Grants: These grants can help veterans with permanent and total service-connected disabilities purchase or build an adapted home. They can also be used to modify an existing home to accommodate a disability.
• There are also numerous state and local programs that provide housing grants for veterans in their area. For example, the Utah Veteran First-time Homebuyer Grant gifts $2,500 to veterans and those currently serving who purchase their first home in Utah. Once you know the location of your new home, you can also check the VA’s National Resource Directory for more location-specific housing assistance.

5. Keep your job

Stability, employment, and income are important parts of qualifying for any mortgage, including a VA loan. So, if possible, keep your employment consistent throughout the home buying process. Quitting your stable job, even if you have another one lined up, raises red flags for lenders of all kinds. This implies that your income may not be on par with the terms upon which your loan offer was made.

Even if you signed the paperwork, your loan isn’t guaranteed until the closing process is complete. So if you change jobs during any part of the process, your loan eligibility could be withdrawn. This also goes for big purchases. You should, of course, still make necessary purchases, but anything extraneous and large that can wait, should.

6. Don’t forget about closing costs

Limited closing costs is one of the great benefits of a VA loan. While the loan has closing costs, the government doesn’t allow veterans to pay many of them. These non-allowable costs can include escrow or settlement fees, processing, underwriting, and document fees. The lender may charge a one percent origination fee instead, meaning one percent of the loan amount. Veterans will also not pay for termite inspections or non-title legal fees.

So what fees will need to be paid? Veterans will pay for a credit report, appraisal, title insurance, recording fees and a survey. Over the life of the loan, there may be other recurring charges that the veteran will be responsible for, such as hazard insurance. Keep in mind that the types of fees and their amounts vary greatly by state. Your lender should provide you with a loan estimate, which outlines the exact fees you’ll need to pay at closing. You can also negotiate these costs, and the seller may pay for some of them.

7. Use the right real estate agent

If you plan to take advantage of veteran home buying programs, choose a realtor who is experienced with veterans. The differences between VA loans and other mortgage options can be vast, so working with a professional who fully understands the buying process for veterans is highly recommended.

Consider searching through online directories to find veteran-friendly agents or speaking with other veterans who have made successful purchases in your housing market. If you feel that your agent can’t properly guide you through the process, don’t be afraid to make a switch at any time.

Buying a house as a veteran can be a major decision, especially for those newly out of the service. However, the right information and preparation can make the process significantly easier. From reviewing all of your lending options to understanding closing costs, these seven veteran home buying tips can help make the process of homeownership as exciting and seamless as possible.