How to Battle Discrimination Against Veterans and VA Loans
Why Some Sellers Don’t Like VA Loans
There is a very disturbing and ugly pattern of discrimination against Veterans trying to qualify for their VA Home Loan Entitlement that happens in the real estate industry and that must change.
Veterans that qualify for VA home loan benefits are having difficulty getting offers accepted to buy a home.
The reason they are not being considered? Because they are using VA financing.
Why Some Realtors Don’t Like VA Loans?
Some realtors and sellers don’t like VA loans because they’re misinformed, believing things about VA loans that literally haven’t been true for years.
Guidelines change all the time in our industry, and the VA home loan is no exception. There was a time when the VA home loan had certain restrictions that would not allow the Veteran to pay certain closing costs associated with the purchase of a home.
The burden of these costs typically fell on the seller. It is understandable that this could cause some reluctance on both the seller and the agent’s part to accept these offers. I guess what makes me most upset is that these guidelines have been changed for years.
While there are still costs that the Veteran is not allowed to pay, lenders have the ability to cover all of these closing costs through the loan. By taking a slightly higher interest rate (and I mean slight!), we are able to pay all costs for any Veteran trying to buy or refinance a home. Problem solved.
My greatest frustration comes from the fact that real estate agents do not even bother to learn about the VA home loan, and how it directly benefits our military personnel. It is almost impossible to show gratitude equivalent to the sacrifices that our military men and women make to keep us safe. The VA home loan benefit is one small way to try to get close.
Myths About VA Loans
The most common myths about VA loans include:
- The seller is required to cover all the buyer’s loan closing cost
- VA loans are less likely to close than other loans
- VA loans take way longer to close than other loans
- VA appraisers take significantly longer than other appraisals
- VA appraisers are more likely to undervalue homes than other appraisers
All of these are myths and are not true. I could show you a bunch of data and facts that prove that, but I don’t want to waste your time.
Who is Affected by This Discrimination?
The VA home loan benefit offers far more flexible qualifying guidelines than other mortgages, including higher loan limits, shorter waiting periods after a financial hardship, and best of all – NO DOWN PAYMENT!
Why do Veterans Have to Fight so Hard for Homeownership?
Requirements for VA Loans
Wartime Eligibility – Veteran service during wartime periods:
- WWII: 9/16/1940 to 7/25/1947
- Korean: 6/27/1950 to 1/31/1955
- Vietnam: 8/5/1964 to 5/7/1975
You must have at least 90 days on active duty and been discharged under other than dishonorable conditions. If you served less than 90 days, you may be eligible if discharged for a service-connected disability.
Peacetime Eligibility – Veteran service during peacetime periods:
- 7/26/1947 to 6/26/1950
- 2/1/1955 to 8/4/1964
- 5/8/1975 to 9/7/1980 (Enlisted)
- 5/8/1975 to 10/16/1981 (Officer)
You must have served at least 181 days of continuous active duty and been discharged under other than dishonorable conditions. If you served less than 181 days, you may be eligible if discharged for a service-connected disability.
Service after 9/7/1980 (enlisted) or 10/16/1981 (officer)
If you were separated from service which began after these dates, you must have the following to qualify for VA Loans :
- Completed 24 months of continuous active duty or the full period (at least 181 days) for which you were ordered or called to active duty and been discharged under conditions other than dishonorable, or
- Completed at least 181 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1171 (Early Out), or have been determined to have a compensable service-connected disability;
- Been discharged with less than 181 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances for the convenience of the Government.
Gulf War – Service during period 8/2/1990 to date yet to be determined
If you served on active duty during the Gulf War, you must have:
- Completed 24 months of continuous active duty or the full period (at least 90 days) for which you were called or ordered to active duty, and been discharged under conditions other than dishonorable, or
- Completed at least 90 days of active duty and been discharged under the specific authority of 10 USC 1173 (Hardship), or 10 USC 1173 (Early Out), or have been determined to have a compensable service-connected disability, or
- Been discharged with less than 90 days of service for a service-connected disability. Individuals may also be eligible if they were released from active duty due to an involuntary reduction in force, certain medical conditions, or, in some instances, for the convenience of the Government.
Active Duty Service Personnel
If you are now on regular duty (not active duty for training), you are eligible after having served 181 days (90 days during the Gulf War) unless discharged or separated from a previous qualifying period of active duty service.
Selected Reservists or National Guard
If you are not otherwise eligible and you have completed a total of 6 years in the Selected Reserves or National Guard (member of an active unit, attended required weekend drills and 2-week active duty for training) and
- Were discharged with an honorable discharge, or
- Were placed on the retired list, or
- Were transferred to the Standby Reserve or an element of the Ready Reserve other than the Selected Reserve after service characterized as honorable service, or
- Continue to serve in the Selected Reserves
Individuals who completed less than 6 years may be eligible if discharged for a service-connected disability.
Un-Remarried Surviving Spouses and Spouses of POW or MIA
- Are an un-remarried spouse of a Veteran who died while in service or from a service-connected disability, or
- Are a spouse of a serviceperson missing in action or a prisoner of war
Note: Also, a surviving spouse who remarries on or after attaining age 57, and on or after December 16, 2003, may be eligible for the home loan benefit. However, a surviving spouse who remarried before December 16, 2003, and on or after attaining age 57, must apply no later than December 15, 2004, to establish home loan eligibility. VA must deny applications from surviving spouses who remarried before December 6, 2003, that are received after December 15, 2004.
Eligibility may also be established for:
- Certain United States citizens who served in the armed forces of a government allied with the United States in WW II.
- Individuals with service as members in certain organizations, such as Public Health Service officers, cadets at the United States Military, Air Force, or Coast Guard Academy, midshipmen at the United States Naval Academy, officers of National Oceanic & Atmospheric Administration, merchant seaman with WW II service, and others.
Frequently Asked Questions About VA Loan Discrimination
Can a seller refuse a VA loan?
Unfortunately, yes they can. While there are many laws that prevent many different types of discrimination, none of them cover the source of the mortgage. So a seller does have the right to choose an offer from someone who will use a conventional or another type of loan over someone who will use a VA loan.
Are there any extra VA loan requirements for sellers?
The VA has established a set of requirements that a home must meet to qualify for a VA loan. These are called Minimum Property Requirements (MPRs) and can be summarized in the phrase, “a home must be safe, sound, and sanitary.” As part of the VA loan appraisal process, the appraiser must indicate that the home meets a set of basic requirements, including:
- Mechanical systems (electrical and plumbing systems) are safe to operate and have life remaining
- There are no signs of leaks in basements and crawl spaces
- There are no signs of termites, fungus growth, or dry rot
- The heating systems are adequate
- Water, hot water, and sewage systems meet local health department standards
- The roofing is adequate and has a future life
- There is no lead-based paint. If it existed in the past, it must be remediated
There are more, but this gives you an idea.
For most sellers, this won’t be a problem, because they are selling a fully-functional home that meets health and local codes.
What are the VA rules for Realtor commissions?
Realtors can receive full commissions on homes purchased with a VA loan. The only catch for the real estate agent or broker is that none of those commissions can be paid by the buyer. Realtor commissions on VA loan sales are fully the responsibility of the seller.
I live in a market with lots of active military and veterans. Is it a good idea to use a Realtor who specializes in VA loan sales?
While it’s never a bad idea to work with a specialist, the difference between VA loans and other types of loans is small, so most real estate agents working in this type of market should be aware of those conditions. The one question to ask your selling agent is “what’s your attitude about working with VA loans?” If they give you a negative answer, you may want to look for a different agent who has a better understanding of VA loans.
Why don’t real estate agents like VA loans?
Some real estate agents don’t like VA loans because of three reasons.
- They believe certain myths about VA loans that are untrue (longer closing times, lower closing rate, VA loans won’t cover closing costs, etc.)
- They think that VA loans mean lower commissions to them. They don’t – the commissions are the same, they just have to be paid by the seller, not the buyer
- The house they are selling has issues they know won’t pass a VA loan appraisal, so they dissuade the seller from accepting those offers, knowing they will have to fix those issues in order to close the sale
What closing costs are VA buyers not allowed to pay?
VA loan buyers are not allowed to pay:
- Real estate broker or agent commission fees
- Lender attorney fees
- Fees for appraisals requested by anyone other than the seller or veteran
- Fees for appraisals required for a Reconsideration of Value
- Fees for a flood zone determination
These are costs that a VA buyer cannot pay. The only item on that list that must be covered by the seller is broker/agent commission fees. Lenders traditionally absorb the other fees for VA loan buyers.
Does a VA loan cover closing costs?
The VA allows lenders to charge a 1% fee to cover their closing costs. (On a $250,000 loan, that 1% comes to $2,500.) If they charge that 1% fee, the lender is not allowed to charge the buyer many of the traditional loan closing costs, including:
- Interest rate lock-in fees
- Loan application or processing fees
- Lender appraisals
- Escrow or notary fees
- Document preparation fees
- Loan closing or settlement fees
- Tax service fees
- And many more
If the lender chooses not to charge the 1% fee, they can charge fees for the items listed above, but the total of those items cannot exceed 1% of the loan value.
In short, as a buyer, you can expect to pay no more than 1% of your loan value towards closing costs.
What is the VA amendatory clause?
The VA amendatory clause, also known as the VA escape clause, states that the VA loan buyer has the right to cancel their offer (give up on the house and remove themselves from the purchase contract) at no fee if the home appraises for an amount lower than they have agreed to pay.
Be aware that though this clause says they have the right to back out of a deal because of a low appraisal value, they are not required to do so. They can choose to waive the clause, and pay the difference between the purchase price and the appraised value out of their own pocket and proceed with the deal. The only requirement is for both the buyer and the seller to sign the clause, they’re not required to live up to it.
Specifically, the clause states: “It is expressly agreed that, notwithstanding any other provisions of this contract, the purchaser shall not incur any penalty by forfeiture of earnest money or otherwise or be obligated to complete the purchase of the property described herein, if the contract purchase price or cost exceeds the reasonable value of the property established by the Department of Veterans Affairs. The purchaser shall, however, have the privilege and option of proceeding with the consummation of this contract without regard to the amount of the reasonable value established by the Department of Veterans Affairs. (Authority: 38 U.S.C. 501, 3703(c)(1))”
What’s the Solution?
Education is the solution. If you are eligible for VA home loan benefits, make sure that your real estate agent is familiar with the guidelines of VA financing and willing to fight for you. Battling the ignorance of uneducated real estate professionals, and sellers are something we have to do one person at a time.
If you are having a hard time getting your offer accepted, it may be VA discrimination, and you may need to find a better home buying team to fight for you.
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