Don't let the name fool you: VA vendee loans are available to everyone, military veterans and civilians alike. With these loans, you can find great bargains in foreclosed properties, either to live in, fix up and rent or sell. While you must pay the Department of Veterans Affairs a funding fee, 2.25 percent as of summer 2012, other costs are less than you pay on a conventional loan.
VA Vendee Loans
Homes originally purchased with VA loans and foreclosed upon are eligible for VA vendee loans. Because of the VA financing, these foreclosed homes are government-owned. They are listed with real estate agents, and you make an offer on them as you would with any house. Like conventional loans, the VA vendee loan features fixed-rate terms of 15 or 30 years, but at lower interest rates than conventional lenders. These rates are set by the Department of Veterans Affairs. Financing approval for these loans is not driven by your credit score. No mortgage insurance is necessary. Sellers can cover as much as 6 percent of closing and related costs, higher than conventional deals. However, the VA vendee closing costs are often higher than the average for a similar property.
If you're planning to live in the house, you can purchase it with a VA vendee loan with no money down. You can also choose to increase the loan by up to 2 percent for covering various expenses, including prepaid and closing costs. If you want to pay off your loan, there are no prepayment penalties.
There's no limit to the number of properties you can purchase with a VA vendee loan as an investor. If purchasing a VA home as an investment property, you can finance it with just 5 percent down. Regulations permit you to use as much as 75 percent of your estimated rental income as an offset against your monthly payment. All of the information regarding potential rental income must be appraiser verified.
With the VA vendee loan, you are buying property "as is," with no appraisal. Do your homework on the neighborhood and comparable values before making an offer. That bargain could become a money pit if it needs far more work than you anticipated. If you have the funds to make the necessary repairs or can do a lot of the work yourself, the VA vendee loan could be the way to go. If you're considering an investment property, ask yourself if you have the experience and the capital to manage and improve it before taking the plunge.
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