VA Foreclosures - Posted by Jim-SC

Posted by Jim-SC on February 02, 2002 at 18:48:28:

Thanks Dave. I’m constantly amazed at the wealth of information available from folks like you on this site.

VA Foreclosures - Posted by Jim-SC

Posted by Jim-SC on February 01, 2002 at 21:25:36:

Anybody have any experience dealing with the Veterans Administration folks? I’m looking at one of their properties. Listed for $65,000 needs a few cosmetic repairs. Comps are around $70,000-$75,000. I can make a cash offer using a home-equity credit line I have. Wonder how much they might be willing to drop the price with an all cash offer. Thanks to all.

Re: VA Foreclosures - Posted by BR

Posted by BR on February 03, 2002 at 09:13:45:

The info provided by Dave is very acurate. To the untrained eye it would appear that paying cash gives a 5% advantage, but as Dave pointed out it is in fact only a 2.75% advantage. I would consider using the vendee financing. The financing is what makes VA FC’s attractive. If not for the easy qualify 7% money why bother. If you can pay cash you should be looking for better numbers than you can find on the VA list.

Re: VA Foreclosures - Posted by Dave T

Posted by Dave T on February 01, 2002 at 22:12:33:

The VA properties are not negotiated sales. There is no offer/counteroffer process here. This is an auction. The VA computes the amount VA will realize with each offer and sells the property to the person whose offer results in the highest acceptable net price to the VA.

Of course, if you are not using VA financing then your offer will result in a higher net to the VA than the identical offer price from someone using VA financing. Additionally, if your realtor accepts less than a full commission, then your offer will again result in a higher net to the VA.

Now, since you are not using VA financing, then you have a 2.75% price advantage over someone who does want VA financing. This is because you won’t have a VA loan that has to be discounted to sell the note for cash, but the VA will not get a funding fee from you either. In my market area, the VA is using a 5% discount on their notes, while the funding fee is 2.25%. In other words, the VA can only sell a note for an amount of cash equivalent to only 95% of the face value of the note. Your downpayment and the VA funding fee is added to the cash equivalent, then the broker commission is subtracted to determine the amount that the VA will net on the sale if your offer is accepted. In a competitive bid process, the bid resulting in the highest net to the VA will be accepted – provided the net to the VA is at least as great as the VA minimum price.

It does not matter to the VA where your money comes from – all cash or a loan. At settlement, the VA will get all cash. Therefore, there is no incentive to the VA to reduce their price simply because you have cash in hand.