We’ve covered various aspects of the VA loan process in the past, to give home buyers and borrowers a better sense of how this program works.
Today, we shift our focus to the house hunting process, with some tips for making an offer on a house when using a VA loan.
The offer is a critical step in the home buying process, especially in a competitive market where sellers receive multiple offers. So you’ll want to do everything you can to increase your chance for success. This guide will show you how to make a smart offer on a home with a VA loan.
Making an Offer With a VA Loan
In many ways, the process of making an offer on a house is the same regardless of the type of loan being used. You fill out a purchase agreement with the amount being offered, negotiate with the seller, and either have your offer accepted or rejected.
But there are some steps you can take to increase the chance that the seller will accept your offer, and those are the strategies we will explore here today.
Overview of the Offer Process
Let’s start by reviewing how the offer process works when using a VA loan. Here are the basic steps that lead up to, and follow, the all-important offer stage:
- The borrower obtains a Certificate of Eligibility and applies for a VA loan.
- The mortgage lender pre-approves the borrower for a certain loan amount.
- The home buyer gets a real estate agent and starts looking at houses.
- The buyer finds a suitable property and decides to make an offer.
- The agent analyzes comparable sales data to validate the asking price.
- The buyer decides on an offer amount and submits it to the listing agent.
- The seller will either accept the offer as-is, reject it, or negotiate the terms.
Aside from step #1, regarding the Certificate of Eligibility, most of this process is the same for VA and conventional loan borrowers alike.
Comparing the List Price to Comparable Sales
Let’s pause on step #5 for a moment. It’s arguably the most important step, when making an offer on a house with a VA loan. When you find a home that meets all of your needs and falls within your budget, the next logical step is to submit a purchase offer to the seller.
But before you put your offer on paper, you’ll want to compare the asking price to recent sales in the area. This is what real estate agents refer to as comparable sales, or comps.
The goal here is to review the sale prices for similar homes that have sold recently in the same area. It’s the best way to determine the current “market value” for a particular house. This kind of research will help you make a competitive offer, while avoiding a situation where you overpay.
Of course, you have to take local real estate market conditions into account, as well.
- In a highly competitive market where sellers receive multiple competing offers, a buyer might end up paying more than the list price to secure the deal.
- In a slower real estate scene, where homes tend to stay on the market for longer periods of time, you might have more negotiating room when it comes to the purchase price.
This is something your real estate agent should advise you on, prior to making an offer.
Myths and Misconceptions Among Sellers
For decades, VA-guaranteed mortgage loans have had a certain stigma associated with them, in the eyes of sellers and their listing agents. Some sellers have been reluctant to accept offers associated with a VA loan, because they think it will make it harder to close or bring additional repair costs.
But current data and reports show that VA loans have a similar closing success rate as conventional mortgage financing. So this stigma is based more on myth than reality.
In short, there’s really no valid reason why a seller would reject an offer just because the borrower is using a VA loan. But this kind of thing still happens on occasion, unfortunately, so it’s something you should be aware of when house hunting.
Tips for Getting Your Offer Accepted
If you’ve already decided that the VA loan program is right for you, you should move forward in spite of these outdated myths and misconceptions. You should also do everything you can to increase the chance that your offer gets accepted.
Here are some tips, strategies and best practices for making a strong offer.
- Pre-Approval, Not Pre-Qualification: Get a full VA pre-approval letter from your mortgage lender. This shows sellers that you’re serious about buying and have been vetted financially, making your offer more credible.
- Know Your Budget: Before you make an offer on a house, do some basic budgeting to determine the maximum amount you can afford. This will help you avoid a situation where you overstretch yourself with an ambitious offer.
- Choose Homes Carefully: When house hunting, try to focus on properties that would likely be eligible for VA loan financing. The truth is, most properties that are in decent shape can qualify for VA financing. But you’ll probably want to steer clear of “fixer-uppers” and homes that are not move-in ready.
- Work a Savvy Agent: Choose a real estate agent who is familiar with VA loans and the local market. Use their expertise to navigate the nuances of the offer and negotiating process.
- Make a Strong Offer: Review comparable sales to determine your offer amount. Aim for a price that falls within the fair market range. Consider offering slightly more than the asking price if there’s strong competition and you can afford to do so.
- Minimize Contingencies: Consider waiving some of your purchase contingencies, such as a financing contingency if you’ve already been pre-approved by a lender. With all other things being equal, an offer with fewer “strings attached” is more likely to be accepted.
- Pay Earnest Money: Show good faith with a higher earnest money deposit. If a typical earnest money deposit in your area ranges from 1% to 2% of the purchase price, consider offering 3% or more. This shows commitment and strengthens your position.
- Be Flexible: Try to be as flexible as possible regarding the closing date and overall timeline. If the seller wants to close ASAP, you could increase the chance of your offer being accepted by accommodating them.
Research and preparation can help you make a strong offer on a house when using a VA loan. By understanding the market and having a solid plan in place, you can increase your chance for home buying success!