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Written by Isaac F. Davis
Every so often, a veteran forecloses on a VA-backed mortgage and the U.S. Department of Veterans Affairs (VA) acquires the property. If the mortgage company fails to auction the foreclosed property, the home becomes known as VA Real Estate Owned (REO). A company called BAC Home Loan Servicing was awarded the sole contract to manage the sale of VA REO inventory.
The BAC advertises the VA REOs on local Multiple Listing Sites (MLS). VA acquired properties are also listed for sale at http://va.equator.com, a VA-linked site.
Buyers looking to purchase a VA-acquired property should contact a local real estate agent. Veterans and non-veterans alike can purchase VA-owned properties for sale. VA REO buyers can pay for the properties any way they like. Qualified VA-eligible veterans can certainly take advantage of their home loan benefits to purchase a VA-acquired home by contacting a VA-approved lender.
Additionally, there is a financing program available directly through the VA exclusively for purchasing VA REO property. The program is called VA Vendee Financing. Vendee loans can be obtained by both veterans and non-veterans. However, Vendee mortgages may not be available for all VA-acquired properties. Guidelines for Vendee funding are as follows:
- - Seller may pay Vendee loan fees and closing costs (limited to 6%)
- - Qualified buyers may assume existing Vendee mortgages
- - Credit score alone does not determine Vendee loan qualifying
- - 15 and 30 year fixed rate terms are available for Vendee loans
Like VA-guaranteed mortgages, a VA funding fee is associated with Vendee financing. The VA funding fee for Vendee financing is 2.25%. Unlike VA loans, a Vendee borrower does not have to have VA entitlement.
Also, unlike VA loans, Vendee financing does not require owner occupancy. Instead, homes financed the Vendee way can either be owner occupied or non-owner occupied. If the buyer plans to occupy the home, a Vendee loan is available with as little as zero money down. What’s more, the loan principal can be increased by up to two percent to roll in closing costs. The Vendee funding fee may not be included in the loan, but it is permissible for the seller to pay this cost.
For non-owner-occupied VA REO purchases, it is possible for Vendee funding to be obtained by qualified borrowers with as little as 5% down. The VA assumes that VA REOs purchased for non-owner-occupancy will be used as rentals. Therefore, a buyer may use up to 75% of the expected rent money to offset the monthly payments on the property. The anticipated rent will be based on a VA appraiser’s estimate. If a Vendee loan is obtained for a non-owner-occupied purchase, the buyer must prove to have experience in property management. With Vendee financing, there is no maximum number of properties that can be financed for rental purposes.
Other advantages associated with Vendee financing include:
- - No prepayment penalties
- - No appraisal needed for underwriting
Like VA borrowers, Vendee borrowers must show ability to pay with income and credit. And, though there is no credit score minimum published in the guidelines, Vendee borrowers must prove to be a satisfactory credit risk.
For more information on financing a VA-acquired property using a VA home loan, or for additional information on the Vendee financing program, contact an experienced VA loan professional.