One of my friends referred me a young man who had excitedly reported to her that he had just been approved for a VA loan of up to $150,000 to purchase his first home. He was already frustrated because he couldn't get any agents to show him “foreclosed on homes or short sales”. I called him back immediately.
Here’s how the conversation went:
Me: I am so excited for you, John (names are changed to protect the innocent).
John: Thanks, but I can’t get anyone work to with me?
Me: I will work with you, with some conditions. May I explain?
John: Please do!
Me: There are a few things we need to discuss:
1. How the market works right now and why.
2. What the process will be and if you’re willing to be obedient to that process or not.
3. Who your lender is and how we will work with them
4. If you’re okay with all of that, then we’ll go find you a house, ok?
John: Ok, Let’s go!
Me: First, it’s a huge seller’s market. That means there is little to no inventory and multiple offers on everything within days…sometimes hours of the homes hitting the market. VA is a fine way to purchase, but you’ll be competing with cash offers and people bidding over list price.
(Me) Do you have your own money or are you expecting the seller to pay all of your closing costs?
John: My lender told me I needed no monies of my own.
Me: I can sometimes get the seller/lender to pay up to 3% but you will need 3-4% more ($4500-$5500). If you cannot come up with that your chances of winning on a home bid are slim to none. Can you find that much money soon?
John: Yes, I think I can get my Dad to help.
Me: Great! This is a must. Your Dad can gift it to you and I’ll need an appropriate gift letter and proof of his funds before we can look at property, ok?
John: Ok, I’ll find out this weekend.
Me: Super, you passed the first test! Now, because you can qualify for only $150,000 and everything is in an overbid situation, we will look at homes in the 120-130 range so when the bids fly we can still get one for you, ok? That means you may have to lower your expectations of what you will get. Okay? Also, when we bid I will expect you to follow my lead on how to do this. We will be bidding at list price or over. Okay with you?
John: Wow! Really? Well, if I will be able to get a home, then, yes, I will follow your lead.
Me: John, I understand this feels weird, but this is how we have to do it in this market. I promise to not let you do anything I think will hurt you or be ridiculous. I will tell you when it’s not worth it to go higher, even if others are. And, you can work with someone else, too, if you’re not comfortable with this scenario. No harm; no foul, okay with you?
John: Yes…I’m good with this.
Me: Okay, great! Since you are in the most in-demand price range, I would suggest that we focus on several agents and my own listings so you have a chance. That will reduce the stress. If we something spectacular pop up, however, we’ll go after it.
You may not see many homes and you will probably make offers on almost every one we do see…if you like it at all. Okay?
John: okay
Me: Also, VA requires reports and clearances that other lenders don’t require. Most of these distressed properties are sold in as is condition so you may have to do required repairs yourself. Are you good at construction stuff? Do you know people who are? The less we ask of the seller the better chance we have. Can we do this?
John: Yes
Me: Great! All we need now then is to get your lender letter, verify the conditions of approval and get your gift for proof of funds and we’ll go find you a home!
As you can see, full disclosure to a buyer is very important. There is no point in me promising a buyer I can help them if they don’t understand the market and what it takes. This will end up in a win-win for all.
If you’re looking to buy….call my buyer’s specialists at 209-823-4722.
