Ask Phyllis: a blog series of frequently asked real estate questions.
Implications of accepting an offer using VA financing
Dear Phyllis,
We received an offer using a VA loan. I would love to support a veteran if I can. What are the implications of accepting an offer using VA financing? Curious
Dear Curious,
A VA loan is a home loan program backed by the U.S. Department of Veterans Affairs and designed for eligible military service members and veterans. The property must meet certain Minimum Property Requirements (MPRs) during the VA appraisal. These guidelines ensure the home is safe, sound, and structurally secure. In some cases, the appraiser may require the seller to make minor repairs before the loan can close. Examples would be no peeling paint or broken window panes.
VA buyers can purchase with little or no down payment, which helps expand the pool of qualified buyers. The overall transaction process is very similar to other financed offers. The primary differences are the VA appraisal standards and the buyer’s loan approval through a VA-approved lender. Another key difference involves closing costs. VA rules prohibit buyers from paying certain fees considered “non-allowable” to prevent excessive charges. If those fees are charged, they must typically be paid by the lender, seller, or real estate agents.
Examples of non-allowable VA fees include:
• Lender/Broker Fees: Loan application or processing fees, underwriting fees, broker fees, and interest rate lock-in fees.
• Professional Fees: notary fees
• Administrative Costs: Document preparation, postage, courier, and photograph fees.
• Certain Inspection/Appraisal Costs: Some lender-required inspections not mandated by the VA Notice of Value (NOV).
• Other Charges: Prepayment penalties, tax service fees, and some escrow fees.
Important considerations:
• The 1% Rule: Some lenders charge a flat 1% origination fee instead of itemizing costs. When they do, many additional administrative fees cannot be charged to the buyer.
• Who Pays the Fees: If non-allowable costs appear, they must typically be paid by the seller, lender, or agents rather than the VA buyer.
• Seller Concessions: VA guidelines limit seller concessions to 4% of the home’s reasonable value.
In most cases, a VA loan means the buyer has earned a benefit through military service. With proper pricing and disclosures, most VA transactions can close just as smoothly as conventional loan sales.
