Foreclosures often allow buyers to purchase a home under its current market value. Since lenders and banks don’t want to hold onto foreclosed properties, they’re typically motivated to sell, giving buyers more bargaining power.
Of course, foreclosed homes may need repairs because they’re often sold as-is. However, it might be well worth it to save on your mortgage payments or put some of your loan amount toward fixing up the home. If you’re eligible for a VA loan, you probably already know that the VA and lender have various requirements you must meet before your loan application is accepted.
So can you buy a foreclosure home with a VA loan? You absolutely can, as long as it meets the VA’s minimum property requirements (MPRs) and you’re eligible for the loan. Keep reading to learn more about buying a foreclosure with a home loan to decide if it’s the right option for you.
Buying a home is an exciting milestone in life. For many, especially first-time homebuyers the idea of bidding at a real estate auction may seem daunting. Auction houses move fast, and buyers need to make quick decisions. This can deter buyers from considering auction houses as a way to purchase a home. However using a VA loan to buy a property at auction can be a great way for eligible buyers to get a deal on their dream home. In this article, we’ll explore whether you can use a VA loan to purchase a home at auction and outline the key steps in the process.
What Is A VA Loan?
First, let’s quickly recap what a VA loan is. VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. They offer favorable terms to eligible borrowers, including:
- No down payment required
- No mortgage insurance premiums
- Flexible credit requirements
- Low interest rates
- Ability to finance closing costs into the loan
To be eligible for a VA home loan you must be an active duty service member veteran, reservist, or qualifying military spouse. The VA guarantees a portion of the loan, protecting the lender if the borrower defaults. This allows lenders to offer better rates and terms.
VA loans can be used to purchase or refinance homes, making them a versatile mortgage option. Now, let’s look at how they can be used at real estate auctions.
Can You Use A VA Loan For Auction Houses?
The short answer is yes, VA loans can absolutely be used to purchase homes at auction. However, there are some important caveats buyers need to understand.
When a property goes to auction, it is usually being sold very quickly. The buyer may need to put down a deposit and close on the home within a matter of days or weeks.
This accelerated timeframe can make getting VA loan approval tricky. VA loans require appraisals, inspections, and other due diligence that takes time. Trying to cram all of this into a compressed auction schedule can be challenging.
Additionally VA loans require properties to meet certain minimum quality standards. If the auction property has significant defects, it may not qualify for VA financing.
So while it is certainly possible to use a VA loan at an auction, buyers need to take some extra steps to make it work. Advanced preparation and coordination with your lender and real estate agent will be key.
Tips For Using A VA Loan At An Auction
If you have your heart set on bidding at auction with VA financing, here are some tips:
Get prequalified: Work with a lender to get prequalified for a VA loan amount before bidding. This shows sellers you can obtain financing swiftly.
Inspect early: Try to inspect the property well in advance of the auction date. This gives time for any repairs needed to meet VA standards.
Bid conservatively: Don’t get caught up in bidding wars. Set a conservative maximum bid based on ARV minus repairs.
Know the timing: Understand the auction process and timing should you win. How soon is the deposit due? When must you close? Coordinate with your lender.
Have a backup plan: In case VA financing falls through, have a Plan B for alternative financing ready. You don’t want to forfeit your deposit if the VA loan doesn’t work out.
Work with experienced pros: Your agent and lender should understand VA loan auction guidelines. Lean on their expertise.
While extra coordination is required, thousands of buyers have successfully used VA loans to purchase auction properties. If you prepare properly, there’s no reason you can’t be one of them!
VA Loan Auction Process Step-By-Step
If you’re ready to take the plunge, let’s walk through the typical VA auction buying process from start to finish:
1. Get prequalified
First and most importantly, meet with a lender and get prequalified for a VA loan. They will assess your credit, income, assets, and service record to determine your borrowing power.
Having a preapproval letter in hand shows sellers you can move quickly. It also helps you set a comfortable maximum bid amount.
2. Find a property
Work with your real estate agent to identify potential auction properties that meet your criteria. Sign up for email alerts from local auction houses to find upcoming listings.
Narrow your search to homes in your target location, price range, and style. The wider your search parameters, the more likely you are to find a match.
3. Inspect the property
Contact the auction house to schedule a buyer’s inspection as far in advance of the auction date as possible. VA appraisers will also need access.
Inspect every aspect of the home and take thorough notes. Pay special attention to any repairs needed to meet VA minimum property standards.
4. Determine your max bid
Factor in your estimated renovation costs and compare recent sales of similar homes to arrive at your maximum bid price. Stick to this number during bidding.
**5. Arrange financing **
Work with your lender to get fully approved and underwritten for your VA loan prior to auction day. Verify you can meet the auction’s deposit and closing requirements.
Having financing locked in early is crucial, as VA loans have more steps than conventional financing.
6. Bid at auction
Auction day is here! Stick to your bidding strategy. Have your agent handle the actual bidding so you don’t get emotionally swept up. Fingers crossed you walk away the new owner!
**7. Put down deposit **
If you win, be ready to put down your deposit per auction terms. This is often 10% or more of the purchase price, due within 24-48 hours. Wire funds to the auction house promptly.
8. Finalize VA loan
Your lender will order the VA appraisal, which is mandatory even if you had a prior inspection. Make any required repairs. Gather documents for underwriting.
9. Close on time
Auction terms usually require closing within 30-45 days. Work closely with your lender, agent, and auction house to meet all closing deadlines.
10. Move in & make repairs
You did it! Complete any renovations needed per your inspection report. Then move into your beautiful new auction home.
While it takes coordination, patience, and discipline, buyers can absolutely use their VA benefits to purchase auction homes. If you have your heart set on an auction find, just work closely with your financing and real estate pros to make it happen.
Key Takeaways On Using A VA Loan For Auctions:
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VA loans can be used to buy homes at auction, but require upfront preparation.
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Get prequalified, inspect early, and work with experienced agents and lenders.
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Stick to your maximum bid based on comps less repairs.
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Understand the auction terms and timing. Have a backup plan.
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It takes diligence, but thousands buy auction homes with VA loans yearly.
Owning an auction property lets you tap into deals not available on the open market. For eligible buyers, VA financing helps make these homes affordable. Use the guidance above, and you can confidently raise your bidder card at your next auction. Happy bidding!
VA Minimum Property Requirements
It’s more complicated to purchase a foreclosure with a VA loan than conventional and Non-QM loans because of the VA’s minimum property requirements (MPRs). These requirements ensure that the home you purchase is safe and structurally sound. A few key requirements include the following:
- Residential zoning
- No major roof repairs requirement
- Heating, plumbing, and electrical are in working order
- No lead-based paint
- Free of pests like termites
- Accessible from public and private streets
- Sufficient living space depending on family size
Unfortunately, the VA can determine your eligibility for the VA loan, but these particular requirements still must be met in order to qualify. This is a common problem because foreclosure properties are sold as-is, so there’s no homeowner seller to fix the problems to help you get approved. Instead, the lender or bank owner probably doesn’t want to have to spend money on the property.
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Can I Buy a Foreclosure With a VA Loan in 2023?
What happens if a VA home fails to sell at auction?
Due to the cash requirement often associated with auctions, a VA borrower with sights set on a certain foreclosure may want to see if that home fails to sell at auction and is offered by the lender. Once it is offered through a regular real estate listing, the property can be closed within a more typical timeframe, commonly 30 or more days.
Can you buy a home with a VA loan?
VA loans provide eligible homebuyers a handful of options to purchase or refinance a home. But what exactly does “home” mean, and what types of properties does the VA loan allow you to purchase with a VA loan? VA loans are for primary residences only. You can purchase a home, condominium, or multi-family home with a VA loan.
Can you buy a foreclosed home with a VA loan?
Purchasing a foreclosed home with a VA loan is possible, but you’ll need to make sure the property meets all of the VA’s criteria. After you’ve made an offer on a foreclosed home, the VA will want to ensure the property meets all the minimum property requirements during the appraisal process.
Can you buy a Reo home with a VA loan?
If you are an eligible service member, veteran or surviving spouse, you can buy a VA REO home using a VA loan. In fact, there are many benefits to doing so. For example: You can buy a home with no money down. You don’t have to pay for private mortgage insurance (PMI), although there is a funding fee for most of which can be built into the loan.