The VA loan, intended to help military members secure a home, may inadvertently become a hindrance when interested in a foreclosed property.
The VA loan’s strict property requirements, which are meant to protect the buyer, could make it difficult for service members to purchase a foreclosure.
Though this may seem daunting, the process is actually pretty simple. 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.
Foreclosed Homes and Minimum Property Requirements
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.
The VA appraisal is to protect military members from investing in a rundown home, which may become unsafe later. This means that foreclosed homes, which often need some improvements, can be off-limits for military membersOne of the biggest issues with purchasing a foreclosed home is that these properties will often be sold “as-is,” meaning no repairs will be done on the property before the loan closes. More often than not, if a homeowner knows their home will go into foreclosure, they will not address many high-cost repairs the home may need. For a home to be approved, the VA requires an appraisal of the property to ensure that it is move-in ready.
Addressing MPR Issues on Foreclosed Homes
Unfortunately, in many scenarios, you won’t find luck with getting the bank that owns the foreclosed home to make any of the necessary repairs. In this scenario, the cost of the repairs would fall on you as the buyer, which can make the home more of a hassle than it’s potentially worth.
In non-foreclosure homes, repairs can be negotiated with the seller, but that doesn’t apply in situations where the property is owned by a bank.
In some rare cases, however, exemptions to MPRs may be granted. Be sure to work with an experienced VA lender to help you navigate this process.
To receive an MPR waiver, both the borrower and the lender must agree on the request being made, and the property must be livable in terms of both safety and structure.
Home Inspections and Foreclosed Properties
While an inspection isn’t required on a VA home loan, those looking to purchase a foreclosed home would be wise to get one anyways. Home inspections look deeper into the property and can raise concerns that an appraisal would not identify such as foundation cracks, electrical and plumbing issues and the condition of the roof.
Why VA Loans Worry Foreclosure Property Sellers
The offer of zero down payments has made the VA loan popular among service members. But property sellers, especially those selling foreclosed homes, are sometimes wary of the VA loan appraisal and inspection process. This process can be difficult if the foreclosed property has any issues that the VA requires the seller to fix before the home can be approved.
According to the Veteran Journal, it is not unusual for sellers of foreclosed homes to accept a lower cash bid rather than deal with the VA loan appraisal and inspection process.
The journal speaks to Guy Cecelo, CEO of Inside Mortgage Finance, who points out, "Buyers may be willing to pay a certain amount for the home, but if the appraiser doesn’t agree that the house is worth that much, the seller ends up accepting a lower amount."
Is Purchasing a Foreclosed Home with a VA Loan Worth It?
It depends; if the property is in good condition and doesn’t violate any major minimum property requirements, then this could be a good use of your VA loan benefit. On the flip side, if the foreclosed property is in rough condition, then the amount of repairs needed may make the property unreasonable.
At the end of the day, purchasing a foreclosed home with your VA loan benefit should be handled on a case-by-case basis and discussed closely with an experienced VA lender. If you’re not up for spending your own money on potential repairs, it may be worth looking at a different property, or exploring other financing options.
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