Military Borrowers Squeezed Out of Distressed Markets
Purchasing a home in a distressed real estate market can present some unique challenges for military buyers, not just in hard-hit states like Nevada and California but across the country.
Active duty service members and veterans in some parts of the country are getting pushed out of the foreclosure market, hampered by a combination of cash buyers and the VA’s appraisal and property requirements.
Lenders love to sell distressed real estate to cash buyers. There’s no underwriting, no lender-required appraisal and no repairs. Negotiations and paperwork hassles disappear. Banks and investors will often accept huge discounts below the full price for a cash offer, especially in local areas with steep foreclosure levels.
An August 2009 analysis by the San Francisco Chronicle found that cash purchases represented more than 40 percent of home sales in some markets flooded with foreclosures. Most veterans simply aren’t in a financial position to pay cash for a home.
What can make matters worse is the VA’s requirement that homes must be “move-in ready,– a standard which can prove a tall order for foreclosures and real-estate owned (REO) homes. The Veterans Administration requires specific minimum property requirements be met, part of its unique appraisal process that puts a premium on health and safety.
But scores of REOs and other distressed market properties fall short of those requirements. Given that backdrop, real estate agents in some of these areas continue to nudge sellers away from VA borrowers.
Veterans are also finding that some banks — typically the larger national outfits — actually require prospective borrowers to seek loan prequalification from them before entertaining offers on foreclosures. That’s a waste of time for military borrowers who already secured loan prequalification before going home shopping.
Competition
Competition for homes in these markets is already fierce.
The bottom line is that veterans in distressed markets should latch on to a real estate agent and lender they trust. They should also prepare themselves for disappointment and delays.
Many will see their “dream home” turned over to an investor with a wad of cash. Patience and preparation are the keys to success — or at least survival.
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About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, including Bigger Pockets, Mortgages Unzipped and Scotsman Guide. A former newspaper and magazine writer, he is also content director for a leading VA lender.
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