The Veteran's Administration offers great home loan
programs for veterans and others. Unfortunately, some of
these homeowners default on their homes, and the VA
repossesses them.
This is an unfortunate situation, but it does create
opportunities for us as private investors. In this article,
I'll explain the basics of VA loan programs and how to
approach this market in order to find and invest in
repossessed homes.
Who's Eligible for VA Loans?
In general, the loans are available to: Active service
members Former members of the service (must meet specific
criteria for length and time of service) Reservists Public
Health Service members Widows/widowers (if service member's
death was service-related)
Type of Properties That Can Be Purchased.
There are several types of properties that can be bought,
including:
Existing single family homes. Townhouses or condos in a
VA-approved project. New construction residences.
Manufactured homes and/or lots. Home refinances. Certain
types of home improvements
Advantages of the VA Programs.
The first advantage is these loans require no down payment.
The second is that the VA guarantees a portion of the loan.
The guaranteed amount of a VA loan is called an
entitlement. The current maximum entitlement for loans up
to $144,000 is $36,000. The exact figure is determined by
the loan amount. The maximum entitlement for VA home loans
over $144,000 is $60,000. This feature protects the
lender's investment if owner defaults. The VA pays the
lender when this happens. In the case of default, the
government can pursue home owners to recover money.
A third advantage is that the government limits the amount
of closing costs, origination fees, and appraisal fees.
Fourth, rates are in line with conventional mortgages.
Finally, no private mortgage insurance is required. In
fact, the VA prohibits it. Since they guarantee the loan,
they don't want owners getting charged for other insurance.
The Disadvantages of the VA Loan Programs.
There is the cost of a one-time funding fee ranging from 1
¼ % to 3% (the average is 2%). However, the fee can
be lowered if the buyer makes a down payment of at least 5%.
A second potential disadvantage is that there is a maximum
guaranteed loan amount, limiting the range of houses
available for purchase.
The Matter of VA Repossessions.
As with HUD properties, you must go through a local,
approved realtor to buy repossessed houses. Realtors often
advertise these properties in the newspapers.
Keep in mind that the VA gives priority to buyers who come
in with their own financing (cash). Generally speaking,
although the VA handles some financing, you'll do better if
you get outside financing.
Condition of VA Properties.
Property conditions range from average to "distressed." At
times, the VA refurbishes homes to get a higher market
price. Needless to say, you won't find any bargains here.
Inspections.
As always, you'll need to have a VA home inspected before
buying it. It'll need to be done during the offering
period, not after an offer has been accepted. You can
definitely find some bargains in VA repos. As always, with
a governmental agency, it requires good knowledge of VA
rules and regulations.
I recommend you visit the VA web site to learn as much as
you can and, of course, develop good relationships with
realtors who specialize in this kind of property.
Key Point: Learn VA regulations inside out and cultivate
good relations with real estate agents who specialize in
these properties.
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Jack Sternberg is a nationally recognized expert on real
estate investment who's been in the business for more than
30 years. Sternberg is the creator of the renowned "Buyers
First" Program. His deals have totaled over $750 million
and he's been to the closing table more than 1,500 times.
For more, visit http://www.askjacksternberg.com
