Your VA loan buyers can still close with a low appraisal
Federal law requires purchase contracts involving FHA or VA financing to include the language in Paragraph 4 of the Third Party Financing Addendum. The buyer’s right to terminate due to a low appraisal cannot be waived by the parties. The seller should understand that a VA or FHA buyer could terminate the contract if the appraisal is lower than the sales price. The VA or FHA buyer does have the option to complete the transaction after receiving the low appraisal by bringing additional cash to closing. The seller could ask for a much larger option fee as compensation if the buyer backs out.
—Texas REALTORS® legal staff
There’s a lot of skepticism around Veterans Administration loans in the housing market. Buyers, sellers, and even some real estate agents may not have all the facts, especially about the appraisal process for VA loans. Kevin Parker, vice president of field mortgage at Navy Federal Credit Union, addresses common misconceptions.
Myth: The VA Inspection and Appraisal Process Takes Too Long
VA loans require VA-certified appraisers. There may be fewer appraisers in your area who are qualified to appraise for VA loans, Parker says. The larger issue is that there’s an appraiser shortage industrywide. Fewer people are becoming appraisers, and the requirements to do so have become stricter. “Texas is one of those markets where the appraisal turnaround times are a lot slower overall—not just VA loans, but conventional loans, too.” Many people want appraisals to buy or refinance a home, and there aren’t enough appraisers to help them quickly.
Myth: There’s Going to Be More Bureaucracy Involved
“I think sometimes the misconception comes from outside of real estate … that because the VA loan is a government product, somehow that’s going to equal more bureaucracy and make it more difficult to get.” Parker says that in many cases, a VA loan has competitive pricing and a streamlined process thanks to digitized certificates of eligibility and appraisal documentation. Lenders can offer VA loans to borrowers with lower credit scores because the VA shares some of the loan risk.
Myth: VA Appraisals Come in Lower Than Conventional Appraisals
Parker says there’s no evidence to suggest properties appraised for VA loans are valued lower than properties appraised for conventional loans.
Enacted in 2010, the Dodd-Frank Act prohibits anyone from influencing appraisals and requires lenders to communicate with appraisers through an appraisal management company. “Today, lenders are all on a level playing field.”
Myth: VA Loans Have a Bunch of Extra Fees
VA loans don’t allow lenders to charge certain so-called junk fees such as processing fees, according to Parker.
Myth: VA Interest Rates Are Not as Good as Conventional Loans
“More times than not, if you compare apples to apples—meaning the same origination fee or loan amount—the VA loan rate is better than a conventional loan rate by about a quarter to a half percent,” Parker says. Lower interest rates mean lower mortgage payments.
If your clients are still apprehensive about VA loans, put the loans to the test, Parker says. “We recommend buyers go out and get three different loan estimates from three different lenders.” The loans could be conventional, VA, or a combination. Then buyers can compare for themselves.