VA Home Loans Are Leaving Veterans Outbid in Hot Housing Market, Lawmakers Warn

Home for sale by owner

Dozens of House lawmakers are concerned the Department of Veterans Affairs' home loan program isn't keeping pace with an increasingly competitive housing market and leaving veterans at a disadvantage against buyers with commercial loans.

In a letter this week to VA Secretary Denis McDonough, 65 lawmakers warned that only a tiny fraction of home sellers now prefer VA loans and that veterans are turning to other options in reaction. The department should "explore how VA mortgage loans can compete in today's marketplace and ensure veterans have negotiating power throughout the home-buying process," the lawmakers, from both parties, wrote.

"Historically, VA mortgage loans were appealing and competitive to sellers," the lawmakers said in the letter, which was publicly released Thursday. "Unfortunately, the current housing market and the rise in cash and conventional loans with waived contingencies can leave veterans unable to compete with other buyers."

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The letter was organized by Reps. Guy Reschenthaler, R-Pa., and Derek Kilmer, D-Wash.

Under the VA home loan program, the loans are provided by private lenders, but the VA guarantees a portion of the loan against the possibility of default. That allows borrowers to get more favorable terms than they might otherwise be able to, including no down payments, lower interest rates and limited closing costs.

But the program also requires a VA appraisal of the home and other qualifying steps that can lengthen the time to close a sale and frustrate buyers and sellers.

"VA borrowers are less successful than borrowers using conventional loan products, with 11% of VA borrowers changing loan products during their housing search, compared to only 1% of conventional borrowers who change financing method," the lawmakers wrote in the letter, citing the National Association of Realtors' 2021 survey on home loans.

In that same survey, 94% of sellers said they were most likely to accept an offer with conventional financing, compared to 1% who said they were most likely to accept an offer with a VA loan.

The VA appraisals can take an average of 14.8 business days to complete, compared to a couple days for a non-VA loan, John Bell, the acting executive director of VA's Loan Guaranty Service, told a House committee in December.

Under those conditions, veterans are competing to buy homes in a historically hot housing market with increasing prices and decreasing inventory.

In February, the median home sale price was $357,300, an increase of 15% over last year, and there was about 1.7 months of inventory, a decrease of 0.3 month from last year, according to National Association of Realtors statistics cited in the lawmakers' letter.

The lawmakers pressed McDonough for answers on how the VA can improve the appraisal process and public perception of the home loan program, as well as what the department thinks Congress can do to enhance the program.

"We call on your department to improve the VA mortgage loan process and ask for a report on the steps the VA is taking to increase loan competitiveness," the lawmakers wrote. "It is imperative veterans receive a competitive loan that provides them the opportunity to purchase a home."

At the December hearing, Bell faulted "misperceptions" among sellers that "VA financing is less … desirable than conventional” loans and said more education is needed to "break the stigma" about the program. In March, the VA and the National Association of Realtors launched a video series aimed at dispelling misconceptions about the program.

Still, Bell also said the department is "consistently looking" for ways to speed up the appraisal process.

"Factors such as reduced housing stock, rising home prices, coupled with cash-only or sight-unseen purchase offers have led to conditions where all buyers with financing are facing difficulty having their offers entertained," Bell said. "While VA is confident its policies will continue to support veterans, we stand alongside them and share their frustration by the lack of transparency in the sale offer process, the loan application process and how veteran borrowers may be perceived and dismissed."

-- Rebecca Kheel can be reached at Follow her on Twitter @reporterkheel.

Related: VA Home Loan Program That Is Popular Among Veterans Gets a Bad Rep from Sellers

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