The Pros and Cons of VA Loans for Home Sellers

For veterans and active military personnel, VA loans offer some of the best terms for buying a home. With perks like no down payment and no private mortgage insurance required it’s easy to see why VA loans are so popular. But what do these government-backed loans mean for sellers?

VA loans come with their own unique requirements that can impact the home selling process. While VA loans provide many benefits to buyers, selling to a VA loan borrower also has some distinct pros and cons that home sellers should understand before accepting an offer backed by VA financing.

An Overview of VA Loans

Before diving into the pros and cons, let’s look at what VA loans are and who qualifies for them.

VA loans are mortgage loans guaranteed by the U.S. Department of Veterans Affairs. Instead of the VA directly issuing these loans, they guarantee them, so veterans and service members can work with eligible lenders to secure financing.

To qualify for a VA loan, buyers must be:

• Active duty military who have served at least 90 days
• Veterans who served and were discharged under conditions other than dishonorable
• Reservists or National Guard members with at least six years of service
• Surviving spouses of qualified veterans

The main benefits of VA loans for buyers include:

• No down payment required – Unlike conventional loans that require at least 3-20% down, buyers can put 0% down with a VA loan. This helps increase affordability.

• No monthly mortgage insurance – Mortgage insurance protects the lender, not you. With a VA loan, buyers don’t have to pay this recurring fee.

• Lower interest rates – VA loans tend to have interest rates 0.5% lower than other types of financing. This can save buyers thousands over the loan term.

• More lenient credit requirements – VA loans are available to borrowers with credit scores as low as 580. There is no published minimum credit score.

• No prepayment penalties – Borrowers can pay off VA loans early with no extra fees.

With such great terms for buyers, it’s easy to see the appeal of VA loans. But what does this mean for sellers? Let’s explore the key pros and cons.

Pros of VA Loans for Sellers

Sellers have a few misconceptions about the disadvantages of VA loans. However, selling to a buyer using VA-backed financing comes with some unique benefits:

Higher Closing Rates

One major pro is that VA loans have higher closing rates than conventional mortgages. According to a study by Ellie Mae, 66% of VA loan borrowers successfully closed on their home purchase compared to just 54% of conventional loan borrowers.

VA loans have less stringent credit requirements and underwriting rules. This helps more buyers qualify and pass underwriting. With a higher likelihood of closing, VA loan buyers can give sellers greater confidence the sale will finalize.

Quick Turnaround

In addition to higher closing rates, VA loans can also mean a quicker home sale. VA loans close in an average of just 42 days compared to 47 days for conventional mortgages.

The streamlined underwriting helps speed up the closing timeline. Sellers can expect a smooth and rapid closing process when working with VA buyers.

Less Stringent Underwriting

As mentioned, VA loans have easier underwriting standards than conventional loans. Whereas lenders place limits on debt-to-income ratios and credit scores, the VA focuses more on stable income and a willingness to occupy the home.

This more lenient underwriting helps buyers qualify who might not with a traditional loan. As a seller, this means you can feel confident even if the buyer has some credit dings or higher debt. The relaxed VA underwriting makes it more likely your VA loan buyer will get approved.

Cons of VA Loans for Sellers

While VA loans provide some excellent benefits for sellers, a few disadvantages exist to consider as well:

VA Appraisals

To qualify for a VA loan, an appraisal must be completed to ensure the home is valued fairly and meets VA minimum property requirements. VA appraisals are often cited as the biggest pain point for sellers.

The appraisal cannot come in lower than the purchase price, so if the appraisal value is under, the buyer will likely renegotiate or walk away. Sellers may have to lower their price or make repairs to pass the appraisal.

VA Minimum Property Requirements

In addition to appraising the value, the VA appraisal checks that the home meets VA minimum property requirements. These requirements relate to safety and livability, so homes must be structurally sound and have proper utilities.

As a seller, this means taking care of any repairs or issues ahead of time. If your home doesn’t pass, you’ll need to make concessions or repairs to close the sale.

May Not Get to Meet the Buyer

Some sellers enjoy meeting the buyers purchasing their home. With VA loans, that’s not always possible.

Oftentimes VA buyers make offers sight unseen when relocating for a military transfer. Sellers should ensure their agent can represent them well throughout the process.

Key Takeaways on VA Loans for Sellers

VA loans undoubtedly provide the best terms for eligible military buyers. But sellers can benefit from VA financing as well.

Some key takeaways include:

• VA loans have higher closing rates than conventional mortgages, giving sellers confidence the sale will finalize.

• The streamlined underwriting and appraisal process helps VA loans close more quickly than other financing options.

• Relaxed credit and underwriting standards make it easier for buyers to qualify for financing.

• However, sellers must pass the VA appraisal and minimum property requirements which can delay closing or require repairs or price reductions.

Understanding these pros and cons allows you to weigh VA loan offers appropriately as a seller. While VA financing is not without drawbacks, its advantages for both buyers and sellers are plentiful.