The Budgethouse Purchase: VA Foreclosures
Veterans Administration (VA) foreclosed homes were part of a world I knew nothing about. At least while living in the Phoenix, Arizona metro area in the early 70’s. We were living in an apartment, and were desperately trying to make ends meet.
One day I answered an ad placed by a real estate broker who specialized in managing, repairing, and selling homes foreclosed on by the VA Real Estate Owned (REO) department. It was a fortuitous meeting since the economy was starting a slow downturn. Being a fledgling carpenter, I was having trouble finding work.
Through him, I learned that I could bid on the repairs to homes taken back by the VA. I did not need to be a licensed contractor. One series of bids allowed me to receive 4 homes all at once. One of those homes caught my attention. I wanted it for myself and my family to live in.
After passing a very minimal application procedure, I was allowed to use the repair funds as a down payment for the house. I was able to purchase it for $20,000. The complete monthly payment, including Principal, Interest, Taxes, and Insurance (PITI) was $200 a month. That was our first home. It also became my first real estate investment as we later rented it out after moving to California.
Buying A VA Repo Today
Any qualified buyer can purchase a VA REO property. In other words, they are not just offered to veterans. An option to finance them is through VA Vendee financing, which is a VA-backed loan program only available for buyers of VA REO properties. What does this mean?
A VA REO property is one taken back as a foreclosure by the VA and then fixed up to meet minimum requirements before being put on the market for auction. Those requirements include:
- A roof that does not need major repairs or have leaks
- An AC system, hot water tank, and built-in appliances that are in good working order
- Broken windows and doors repaired or replaced
- Flooring in respectable shape
Most regular foreclosures will not qualify. The VA brings their own recovered properties into compliance with the Vendee program. It is designed to make it much easier for buyers to qualify for a loan.
The Vendee Program Features
If the buyer plans to occupy the VA REO home as a primary residence, the following benefits apply:
- Zero money down within conforming loan limits
- No private mortgage insurance
- No pre-payment penalties
- VA Funding Fee from 0% to 3.3%
- VA loans are made by approved lenders
- Loans are assumable
- Up to all closing costs may be paid by seller plus 4% concessions
No minimum credit score is published in VA or Vendee guidelines; however, borrowers must prove to be a satisfactory credit risk as determined by the VA-approved lender.
Whom Do You Deal With
The VA doesn’t lend money directly, it works with participating lenders, and it also does not sell its REO homes directly. For that, the government contracts an independent company for the task.
Formerly, it “had” contracted a company called BAC Home Loan Servicing, which was responsible for listing and selling VA REO homes. BAC Home Loans Servicing, LP operated then, as a subsidiary of Bank of America, National Association. But no more. They got caught up in the prime lending mess whereby many foreclosures were done improperly without following the judicial process.
Now, when the Department of Veterans Affairs (VA) acquires properties as a result of foreclosures on VA guaranteed loans, a new agency is involved. These acquired properties are marketed through a property management services contract with Ocwen Federal Bank FSB, West Palm Beach, Florida.
The properties are listed by local listing agents through local Multi Listing Systems (MLS). A list of properties for sale may also be obtained from Ocwen’s website at http://www.ocwen.com. If you are interested in buying a VA-acquired property when it is listed for sale by Ocwen Federal Bank FSB, please contact a local real estate broker of your choice to see the property.
The irony of this is that Ocwen was the management firm in charge of my home prior to my purchasing it through an online auction. While researching this article, I went to their website, I clicked on the Ocwen Residential REO tab, and voila! It took me straight to the HUBZU website, the same combined auction house, realtor, and escrow agent that handled the purchase process of my current home a few years earlier. Amazing!
Finding Homes And Moving Forward
The Ocwen website platform allowed me to view many foreclosed properties in Florida. Buyers can locate a VA REO home through them based on property location, price range and other criteria. I did not go into details as to which ones were specifically VA repos or not. That would take additional research.
In most cases, a VA foreclosed property will first be offered through auction by the county sheriff to the highest bidder. If the home fails to sell to a third party at auction, then the home may be acquired by the lender and then made available through typical real estate listings like the local MLS.
Due to the VA owner-occupancy requirement, all homes financed with the VA guarantee must be in safe living condition. If repairs are needed before the home can pass VA appraisal/inspection, often the buyer will pay for them and incur the risk. The VA will not provide its guarantee on a home that does not appraise for its sales price.
The Benefits of VA Foreclosures
VA homes will usually sell to the public at 30 to 50 percent off their market value. Keep in mind that a VA home may be in better condition than other foreclosed properties. As stated earlier, this is because the VA takes an active part in preparing their foreclosed properties for sale.
You are buying a home that is both heavily discounted to the market, but is in basic livable condition at the very least. You can also be in the position of finding the home yourself and sizing up your ability to afford and qualify for the Vendee Program upfront.
Things To Consider
Finding a real estate agent qualified to deal with VA repos and the Vendee Financing Program, may be difficult, especially if your sights are on a rural location. If you are working with one currently who does not understand VA policy, you can always have them contact the VA.
For more information on the VA Vendee Loan Program, contact VRM Mortgage Services at 855-843-8334 or firstname.lastname@example.org. To view VA REO properties available for Vendee financing, visit listings.vrmco.com
If you already went through a VA foreclosure and lost your house, you can still qualify. But you would have to clear up any monies owed to the government. This would include any government agency.
If you submit a bid on a VA REO property, it will be on one that did not sell to an investor or all cash buyer at auction. Still, your bid offer may have competition from other interested parties. If your bid is exceeded by a competitor and accepted, they still have to complete the qualification process if they are in need of a loan to seal the deal. Your bid can be a back up to the winning bid if so directed by your realtor.
When buying any government property, you must have a realtor. Even if you do all the home-finding, escrow management, and legwork yourself. The seller will pay the commission.
The article deals with another way to purchase and finance a home by the budget minder home buyer. You can obtain a nice home without all the headaches of basic renovations and home equity loans.
You just need to have a good deal of fortitude and the ability to handle stress when issues arise. Not everyone can do this and many homeowner wannabes give up, especially when the time frame drags out seemingly forever.
However, you have gotten this far with the article to show yourself you are still interested. Don’t give up. There are different ways to buy a home on a budget. This is one of them. Make it happen!