VA Loans Shunned

HOUSING: Veterans' loans shunned by sellers, real estate agents say.

North County Times - By ERIC WOLFF - January 24, 2010

In February 2009, U.S. Navy Lt. Larry Cowles and his wife, Gina, had a Veterans Affairs Administration-backed loan and a dream of buying a house.

They spent eight months dragging their four children to dozens of homes around North San Diego County, and they made 13 bids. None were accepted.

"We'd say, 'We're going VA.' They'd say, 'Oh. Good luck. We're not taking VA loans,'" Gina said. "They weren't supposed to, because that would be discriminatory. But occasionally they'd say, 'Don't even bother making a bid.'"

VA loans are intended to be a benefit to active and retired service members: They allow no-down-payment house purchases, and a low interest rate on the loans.
But misperceptions about the riskiness of these buyers, combined with the reality of stringent inspection standards and piles of paperwork, have left many sellers unwilling to take VA bids, said real estate agents and mortgage brokers throughout the region.

The delays and denials promise frustration for at least some of the 265,000 veterans in San Diego County and the tens of thousands of active duty personnel in the region.
"Those guys are
bottom on the list, and they should be top, if there's any patriotism to any of this," said John Linthurst, the Cowleses' real estate agent.
The VA could not provide a policy official to comment on this story last week.

To some extent, VA buyers are penalized by the excesses of the housing boom, when unqualified buyers took multiple loans so they could purchase more expensive houses than they could afford. Some sellers see a no-down payment loan, and even though it's backed by the VA, they get nervous that the deal won't go through, said Malcolm Davies, a mortgage banker and branch manager with Opes Advisers. But VA loans have to be fully underwritten, like any conventional loan, Davies said.

"We have very well-qualified VA borrowers, many of which aren't able to acquire properties, simply because sellers believe that their financing is 100 percent financing," Davies said.
There are risks to getting into escrow with a VA buyer: If the deal falls through, the seller has to pay for the appraisal, the inspection, and some other transaction costs.

The VA also has strict rules for the condition of houses they'll allow to be financed. Brad Wales searched for months to find a house the VA would accept, and ultimately failed.