Using a VA Loan in a Seller’s Market: Considerations and Strategies

Marcus Marion, CMA™ 2 months ago 0 16

A seller’s real estate market can create additional challenges for home buyers who are using VA loans. But they’re only challenges, not roadblocks. With the right strategy, you can successfully use a VA loan to buy a home in a seller’s market—and this guide will help you do it.

What Is a Seller’s Market Exactly?

You probably already know that a seller’s real estate market occurs when market conditions favor sellers rather than buyers.

But how does this come about? What factors contribute to a seller’s market and how does it affect you when buying a home with a VA loan?

Definition: In real estate, a “seller’s market” happens when there are more buyers seeking homes than there are properties available. This dynamic gives sellers a significant advantage when it comes to pricing and negotiations.

Here are some of the challenges buyers can face in a seller’s market:

  • Low Inventory: It can be harder to find a suitable home within your budget.
  • Faster Sales: Homes can sell quickly, often within days of being listed.
  • Higher Prices: Sellers often receive offers at or above the asking price.
  • Bidding Wars: Eager buyers often try to outbid each other for desirable homes.
  • Less Leverage: Buyers might have less room to negotiate repairs or concessions.

A seller’s market typically develops due to imbalances between housing market supply and demand. But there are other contributing factors as well. Zoning restrictions, population growth, investment activity, and a lack of available land can also lead to a seller’s real estate market.

Buying in a Seller’s Market With a VA Loan

Home buyers using VA loans can encounter additional challenges and obstacles in a seller’s market, compared to a slower market that favors buyers.

For one thing, sellers can be a lot pickier when it comes to reviewing offers. They can choose offers with the highest sale price and the fewest “strings attached,” while dismissing those at the other end of the spectrum.

But how does a VA loan play into this dynamic? Do borrowers with VA loans have a harder time navigating a seller’s market, compared to those who use traditional conventional mortgages?

The answer is “sometimes yes.”

In a fast-paced real estate market with stiff competition between buyers, those who use VA loans can face additional challenges. This is partly due to misconceptions about the VA loan program.

Two of the most common misconceptions are:

  • VA loans take a lot longer to close and are more likely to “fall through.”
  • VA loans often require expensive repairs due to strict property standards.

(Note: We’ve debunked these and other misconceptions in a previous article.)

Regarding the first point, VA-guaranteed mortgage loans actually have a higher closing success rate than regular / conventional home loans. Statistically speaking, borrowers who use VA loans to buy a house are more likely to reach the finish line and receive funding.

As for those property requirements, they’re really not that strict at all. While the Department of Veterans Affairs does maintain a specific set of minimum property requirements, or MPRs, they mostly relate to basic health and safety issues like lead-based paint and faulty wiring.

Well-maintained properties in overall good condition typically have no problem meeting VA loan guidelines.

Concerns Over Property Requirements and Repairs

But this is where the seller’s market distinction comes back into the picture. Even if there’s a slight chance a homeowner might have to make repairs to meet VA loan standards, they might favor purchase offers backed by conventional financing.

Conventional loans are not backed by the government, so they don’t have any government-imposed property requirements. The buyer can choose to have the home inspected, but they’re not required to do so.

In a competitive seller’s market, buyers with conventional mortgage loans will sometimes waive the home inspection to make their offers more appealing. But a borrower with a VA loan cannot do this. VA loans require a home appraisal that has an inspection component built into it.

The truth is, homeowners with well-maintained properties have nothing to fear when it comes to VA-loan-backed offers. As mentioned, homes in good condition usually “sail through” the appraisal process with no snags or red flags.

On the other hand, homes in need of work might not qualify for VA loan financing at all. In these cases, the appraiser might determine that certain items need to be repaired to meet property requirements. And in a seller’s market, that doesn’t go over so well.

VA Loan Benefits Can Outweigh the Downsides

Ultimately, you have to choose the type of mortgage loan that works best for you, based on your financial situation. And there are many things to like about the VA loan program.

In a seller’s market, borrowers with VA loans can encounter occasional obstacles. But the benefits of this program typically outweigh any potential downsides when it comes to seller perceptions.

Here are some of the biggest benefits this program offers:

  • No down payment required in most cases
  • Competitive interest rates
  • No need for private mortgage insurance (PMI)
  • Limited closing costs
  • More flexible credit and income requirements
  • Ability to reuse the program multiple times
  • No prepayment penalties
  • VA assistance if you face hardship and struggle with payments

VA loans allow you to buy a home with no down payment and no mortgage insurance. This removes what is often the biggest obstacle for home buyers. Even in a competitive seller’s market, home buyers can still benefit by using a VA loan to buy a house.

You just have to enter the market with the right mindset and realistic expectations. If a seller turns down your offer for some reason, move on to the next property.

You can also increase your chance for success by getting pre-approved for a loan prior to house hunting, and by making a strong offer with few contingencies.

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