What VA Loans Can't Do
Taking advantage of the VA home loan benefit to buy and finance a home is one of the most popular benefits qualifying veterans have at their disposal.
Interest rates for VA mortgages are as competitive as any yet don't require any down payment, have reduced closing costs and no mortgage insurance. It's a complete package and hands-down the best choice for those who qualify for the benefit and want a mortgage with no money down.
However, there some that the VA home loan can't or won't do, leaving the VA option either a less desirable option or having expected features missing. What are they?
Inspections. A property inspection is performed by a licensed property inspector and is not the same as an appraisal. An appraisal report helps to substantiate the current market value of the subject property whereas an inspection reviews the physical condition of the property. VA loans do have minimum physical requirements that the appraiser must address what is called "Minimum Property Requirements" such as having a bathroom and separate areas for sleeping, eating and cooking among other requirements.
The property inspection looks for physical defects of the home. The inspector will examine the home from the basement to the rooftop and make notations of items that need to be addressed such as a faulty light switch, windows that don't work and major issues such as a leaking roof or shifting foundation. But the VA does not warrant the property to be in good condition and the VA does not send its own inspector to verify that the home is in good shape. That determination is made by the inspector and the veteran in conjunction with the appraisal.
Construction. When you obtain your certificate of eligibility you'll notice in the small print the type of loans the guarantee will apply to and one of those loan types is for new construction. While the VA will guarantee a construction loan you'll be hard pressed to find a VA lender to make one. A construction loan is different than a permanent mortgage in that the construction loan is issued in phases and is temporary.
As the home is being built, the lender will inspect the progress of the construction and issue new rounds of funds to the builder as the home progresses. At the end of the construction period, the construction loan must be replaced. A VA loan may be used to replace a construction loan but mortgage lenders won't issue a VA construction loan.
VA Intervention. If something goes wrong during the VA loan approval process, the VA really can't intervene. There's really no appeal process because the VA lender is the entity that approves or denies an application. If an application is turned down, the borrower is required by law to receive a form lenders refer to as an "adverse action" which describes the reason why the loan cannot be approved as submitted. The reason may be negative credit or insufficient income. Regardless of the reason for the declination, the VA is not there for an appeal. If a borrower however feels discriminated against and unfairly declined for a loan, the VA can assist with your complaint by completing form 27-8827, the Housing Discrimination Complaint form.
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Grant Moon is an Army Reserve Captain and CEO of VA Loan Captain, Inc., a veteran-owned business that facilitates VA Home Loan Purchase and Refinances through a platform of lenders that offer competitive rates for veterans and servicemembers. He is also the author of the "Ultimate Guide to VA Loans" from a Veteran's Perspective.
If you have home loan questions, you can send them to Capt. Moon at email@example.com.
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