This past summer, an Air Force Staff Sergeant hoped to buy a home for his family using a home loan from the U.S. Department of Veteran Affairs. He wanted to have his wife and two children settled into their new home before he was sent overseas to the Middle East in August.

He and his wife made several offers on foreclosed homes in California using their VA loan, but none were accepted.

VA loans are guaranteed mortgages provided to the country’s 25 million living veterans (or their surviving spouses) to purchase homes with little or no down payment. It sounds like a great deal, but the loans do come with certain restrictions around appraisals and inspections that are shutting service members out of buying foreclosed properties.

 

The family lost a bid on a foreclosed home in California. The property eventually sold to a cash investor who paid a lower price.

 

According to the CEO of Inside Mortgage Finance, this is not unusual for buyers using VA loans.

Usually the biggest problem with VA loans is the appraisals. The buyers may be willing to pay a certain amount for the home, but if the appraiser does not agree that the house is worth that much, the seller ends up accepting a lower amount.

At the same time, many homes may have problems that are not easy to detect. That causes issues with the financing during the VA inspection process.

In fact, many of the properties that are in foreclosure or in financial trouble are being bought with cash, because standard financing is not designed for this kind of property.

According to data from the Real Estate Agents Reports on Home Purchases and Mortgages – 2009, investors who usually pay cash for homes, are buying more than half of the foreclosures sold by banks.

Because the VA buyers may not be putting money down, if the home needs thousands of dollars in repairs, which it likely does, the soldier could quickly end up in trouble and then default on the loan.

Service members who are looking to buy their first homes did get some good news recently. The House of Representatives recently voted to extend the popular $8,000 first time buyer credit for another 12 months for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009.

However, many military families are still being left out in the cold and are forced to search endlessly for a home.  I don’t know about you, but this does not seem fair to me.  What do you think?