Basic Training for Military Homebuyers

Army, Navy, Air Force, Marines: more than 1.4 million people actively serve in those four branches of the military, according to the U.S. Census Bureau. Throw in the nearly 24 million veterans and you've got a large population of potential homebuyers, a population that the U.S. government has tried to encourage with different real estate programs for veterans. The best known of these, started in 1944, are VA loans, a guarantee program that has helped, according to the Veterans Administration, 18 million buyers.

More recently, however, the VA Home Loan program has run into problems. "Military Homebuyers Find VA Loans a Roadblock," a piece by Carolyn Said in today's San Francisco Chronicle, notes that having a VA Loan can actually hurt foreclosure bidders.

The reasons, as Said explains in her trenchant piece, are two-fold. One is that a lot of foreclosures are cash sales (I translate this as meaning they're being bought by investors rather than potential residents) and sellers often prefer cash deals to mortgage deals. An all-cash deal is faster and less risky.

To make up for this, bids with mortgage financing are often higher in terms of absolute price, but the seller is still waiting an extra month or two, and taking the risk that the mortgage doesn't get funded, to make an extra few percent. The Chronicle quotes Tom Kelly, a spokesman for JP Morgan Chase, as saying that the bank does not accept lower cash offers on its foreclosure deals -- but I can tell you from my own experience, cash vs. financing is a decision that can be very subjective. I recently counseled one of my sellers to take a higher-priced mortgage deal over a lower cash offer, and even some of the other people on the seller's team disagree with me.

The second reason is that the Veterans Administration is a lender actually making the loans but a guarantor -- however their standards are strict and some foreclosure houses don't meet VA condition requirements.

Now let me state that I've got a certain amount of bias in this. I'm not only a realtor, my dad worked for the VA for a quarter-century.

So I certainly think that men and women who have served in the military are entitled to their housing benefits. What do you do if you're in that position?

• Realize that VA Loans can be worth waiting for. While you certainly want to investigate alternative mortgage products if it means you can get a great foreclosure bargain, let me say that rehab always costs more than you think it will, and that limits on the condition of your new home might not be a bad thing.

  
  The VA program also enables you to put less than the conventional 20 percent down on a loan -- although let me say, because I'm conservative, that I think you should always put down at least 3 percent. If you don't have that much cushion saved, you're probably better off renting.
  For refinancings, VA circular 26-18-09 notes that you can get 100 percent of the appraised value of the home -- which is an increase from the previous standard of 90 percent, and better than the 70 percent that is all that civiiians can often swing in this market.
  You can find out more about these loans by contacting a staffer at a VA regional Home Loan center.

• Don't buy too much house. In "Five Items that Kill Your Income," on military.com, Manisha Thakor advises that you don't buy a house that costs more than three times your annual income. It's a good rule and one that will keep you out of a lot of trouble.
• Take advantage of current rent protections. You want to stay current as a renter just to protect your credit, but the Servicemen's Civil Relief Act does provide some protections for you. For one thing, you can terminate a lease if you're redeployed, and for another, in certain circumstances you're protected from eviction.