VA Vendee Financing Program Part Two

A recent question in the comments section asked me about the VA program known as vendee financing. I wrote an initial post about the program itself, but I was also asked about my opinion of the program:

“Are you familiar with the Vendee Program bank of America offers to buyers? It is a VA program offered on a listing I was showing a buyer and I am curious a person in your specialty has opinions on it.”

To recap—the VA has a list of foreclosed homes for sale. It makes these homes available under the Vendee financing program. Vendee financing is atypical for a VA loan product because vets and civilians alike can use it.

For vets, no VA entitlement is available for these properties. On the other hand, since this is not a credit score driven loan (to use the VA’s phrase) qualifying for one wouldn’t be difficult if you meet the other requirements.

No credit check at all? No money down? (0% down for owner occupied purchases). Sounds awesome, right?

Here is what could stop some buyers in their tracks. There’s no appraisal required. These homes are sold as is and you basically get what you get. Closing costs on this type of loan can be higher than a typical home loan—another area to keep an eye on when weighing the pros and cons, and you can’t finance those costs. You pay them out of pocket instead of building them into the loan.

For some the appraisal issue is not a problem—they feel confident enough to hire someone or do their own inspection of the property and move forward from there. But an inexperienced house buyer who doesn’t know a foundation problem from a termite nest might not be so ready to buy without the opinion of an expert on the value, if not the general condition of the property.

It’s impossible to throw the baby out with the bathwater on this—an investor who wants to pick up a rental property through the VA Vendee Financing program and knows how to handle the potential pitfalls (no inspection or repairs by the seller if there are defects) might do well to take advantage. Like everything else in life, a little knowledge goes a long way.

But for people who aren’t handy, don’t like a fixer-upper or the general uncertainty of buying a VA property without knowing “what lies beneath” so to speak, a more typical VA loan product is probably the best bet. That goes double for anyone who doesn't want to pay higher closing costs where applicable.

But don’t just take my word for it. My fellow Active Rain blogger Karen Luke wrote a three-part post about her own experiences with the VA Vendee Financing program. Read her entry too for another perspective on the issue.