Are VA Loans Bad for Sellers?
If you've ever sold a home, you might have heard some concerning advice about VA loan offers. Perhaps your real estate agent cautioned against accepting them, or maybe another seller shared a negative experience. VA loans have developed a somewhat unfavorable reputation among sellers, but is this reputation truly deserved?
In this comprehensive guide, we'll explore whether VA loans are actually bad for sellers, examine common misconceptions, and provide clarity on how the VA loan process might impact your home sale. Understanding the realities behind VA loans can help you make informed decisions when selling your property, potentially opening your home to a larger pool of qualified buyers.
Common Concerns: Why Do Sellers Hesitate to Accept VA Loans?
Before we can determine whether VA loans are genuinely problematic for sellers, we need to understand the specific concerns that have contributed to their reputation. Here are the primary reasons sellers often hesitate when they receive a VA loan offer:
1. Stricter Appraisal Requirements
One of the most frequently cited concerns about VA loans is their rigorous appraisal process. The Department of Veterans Affairs requires that homes purchased with VA loans meet specific Minimum Property Requirements (MPRs).
These requirements aim to ensure the home is:
Safe
Sound
Sanitary
For homes in good condition, this isn't typically an issue. However, if a property has certain defects, the VA appraisal might flag them as needing repair before the loan can proceed. Common issues include:
Peeling paint (especially in homes built before 1978)
Roof problems or limited remaining roof life
Missing handrails
Evidence of water damage or moisture problems
Broken windows or damaged flooring
Inadequate heating systems
Unlike conventional loans, where buyers might be willing to overlook certain issues, VA loans require these conditions to be addressed—often at the seller's expense—before closing can occur.
Related: Best VA Loan Lender
2. Conservative Appraisal Values
Another significant concern is that VA appraisals sometimes come in lower than expected. VA appraisers are known for being somewhat conservative in their valuations, which can create complications if the appraisal comes in below the agreed-upon sale price.
When this happens, sellers face difficult choices:
Reduce the sale price to match the appraisal
Negotiate with the buyer to split the difference
Risk losing the deal entirely
While VA buyers can pay above the appraised value in certain circumstances, they're often limited in how much they can contribute beyond the appraised value, unlike conventional loan buyers who might more easily cover the gap between appraisal and purchase price.
3. Seller Concessions and Closing Costs
VA loans limit the types of fees and costs that can be charged to the veteran buyer. As a result, sellers may be asked to cover certain closing costs that would typically be the buyer's responsibility in a conventional loan transaction.
These might include:
Termite inspections and clearance reports
Certain loan origination fees
Some title fees and escrow charges
In competitive markets, these additional costs can make VA offers less attractive compared to conventional or cash offers where these expenses would be handled differently.
4. Perceived Closing Delays
Many sellers and real estate agents believe that VA loans take significantly longer to close than conventional loans. This perception stems from historical patterns when VA loans were indeed known for their lengthy processing times.
The concern about delays centers around:
Government bureaucracy slowing down the approval process
Additional paperwork requirements
Scheduling and completing the specialized VA appraisal
5. Earnest Money Protections for Buyers
VA loans offer strong protections for veteran buyers, particularly regarding their earnest money deposits. If a property fails to meet VA MPRs or doesn't appraise for the purchase price, the buyer can typically withdraw from the transaction without penalty.
While this is an important protection for veterans, it can create uncertainty for sellers, who may worry that VA buyers have an easier exit path from the contract compared to conventional buyers.
Reality Check: Are These Concerns Valid in Today's Market?
Now that we've outlined the common concerns, let's examine whether these issues truly make VA loans problematic for sellers in the current real estate landscape.
Closing Timelines: Perception vs. Reality
The perception that VA loans take significantly longer to close than conventional loans is largely outdated. While VA loans once had a reputation for lengthy closing periods, modern processing systems have dramatically improved efficiency.
Today's reality:
Many VA loans close within 30-45 days
Some can close in as little as 14-21 days with experienced lenders
Closing timelines are often comparable to conventional loans
The key factor is working with mortgage professionals who specialize in VA loans and understand how to navigate the process efficiently. When all parties are experienced with VA transactions, delays are minimized.
Related: Best VA Loan Lender
Property Condition Concerns
While it's true that VA appraisals include Minimum Property Requirements, these requirements primarily focus on ensuring the home is safe and habitable—not on cosmetic issues. For homes in good condition, the VA appraisal is rarely a significant obstacle.
The most common MPR issues are:
Safety hazards (missing railings, broken steps)
Structural problems
Active water leaks or damage
Defective mechanical systems
Most of these issues would likely be flagged in any home inspection, regardless of loan type. The difference is that with VA loans, addressing these issues becomes a requirement rather than a negotiation point.
Appraisal Values and Market Realities
Conservative appraisals can occur with any loan type, not just VA loans. While VA appraisers are trained to be thorough, they're also instructed to reflect accurate market values based on comparable sales.
In many cases, appraisal issues arise not because of the VA loan itself, but because:
The agreed-upon price exceeds market value
Comparable sales don't support the purchase price
The market is rapidly changing
These situations would potentially cause problems with any type of financing, not just VA loans.
Closing Cost Considerations
While VA loans do restrict certain fees that can be charged to the buyer, many of these costs can be negotiated. In balanced or buyer's markets, sellers might need to contribute to closing costs regardless of loan type.
Additionally, VA buyers often come to the table with strong offers in other respects, potentially offsetting concerns about closing cost contributions:
Many are pre-approved and have secure employment
They typically have reliable income
They're often serious about completing the purchase
How Does Selling a Home Change with a VA Loan Buyer?
If you're considering accepting an offer from a buyer using VA financing, here's what you should expect throughout the process:
The Pre-Approval Process
Most VA buyers will come with a Certificate of Eligibility (COE) and pre-approval letter. This pre-approval process is often thorough, giving you confidence that the buyer is financially qualified.
What this means for sellers:
VA pre-approvals typically involve detailed income verification
The buyer's entitlement (loan guarantee) has usually been confirmed
The risk of loan denial for qualification reasons is often lower than with some other loan types
The Purchase Agreement
VA loan purchase offers will include specific VA loan contingencies that differ slightly from conventional loan contingencies:
VA amendatory clause regarding appraisals
Specific inspection requirements
Potentially different timelines for loan approval
Your real estate agent should help you understand these differences before accepting the offer.
Related: Best VA Loan Lender
The Appraisal Process
The VA appraisal is a key difference in the transaction process:
A VA-approved appraiser will be assigned
The appraiser will evaluate both value and property condition
Any required repairs will be noted in the appraisal report
If repairs are required:
You'll receive a list of required corrections
You can negotiate with the buyer about who will handle them
Repairs must be completed before closing
A reinspection may be needed to verify completion
Closing and Funding
At closing, the process is similar to other loan types, but with some VA-specific documentation. The actual funding process typically proceeds smoothly once all conditions have been met.
Making an Informed Decision: Should You Accept a VA Loan Offer?
When deciding whether to accept an offer from a VA loan buyer, consider these factors:
Property Condition Assessment
Before listing your home, consider its current condition:
Is your home well-maintained with no obvious safety issues?
Are there any known problems that might trigger VA MPR concerns?
Would you be willing to make necessary repairs if required?
Homes in good condition typically sail through the VA appraisal process with minimal issues.
Market Conditions
Your local real estate market plays a significant role in this decision:
In a seller's market with multiple offers, you might have the luxury of choosing offer types
In a balanced or buyer's market, rejecting VA offers might unnecessarily limit your buyer pool
In areas with military bases nearby, VA loans may be extremely common
Buyer Qualifications
Not all VA offers are created equal. Consider:
The buyer's credit score and overall financial situation
Down payment amount (some VA buyers put money down despite the 0% option)
Strength of pre-approval and lender reputation
A well-qualified VA buyer working with an experienced lender may present less risk than a marginally qualified conventional buyer.
Working with Experienced Professionals
The smoothness of a VA loan transaction often depends on working with professionals who understand the process:
Choose a listing agent familiar with VA transactions
Ask about the buyer's lender and their experience with VA loans
Consider the entire offer package, not just the loan type
Conclusion: VA Loans Aren't Inherently Bad for Sellers
The perception that VA loans are bad for sellers stems largely from misconceptions and outdated information. While these loans do have unique requirements, they also offer advantages:
They provide access to qualified buyers with stable income
VA buyers are often highly motivated to complete purchases
The loans are backed by the federal government
Closing timelines have improved significantly in recent years
Rather than dismissing VA offers outright, sellers should evaluate each offer on its own merits, considering the property condition, market dynamics, and the specific buyer's qualifications.
By understanding the realities of today's VA loan process, you can make informed decisions that might ultimately lead to a successful sale while helping a veteran or service member achieve their dream of homeownership. In many cases, what initially seems like an obstacle might just be a different path to the same destination—a successful home sale.
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Mortgage Heroes has been helping Active Military and Veterans for more than 15+ years. This page is made to help all military families get the answers they are looking for when it comes to housing. Whether its questions about using your VA or new listings in SD, Mortgage Heroes are here to support just as each military member has supported this country!
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