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Introduction
Just like any other mortgage loan, if the borrower defaults on the VA loan, the property would be foreclosed by the lender. However, the foreclosure process for a VA loan is different from regular mortgages.
The Department Of Veterans Affairs holds these foreclosed properties to sell under a specific program and recover their money known as the VA vendee loan program.
The best part is you don’t have to be a veteran or service member to get this loan. In this post, we will understand what a VA vendee loan is in detail.
VA Loan Program Foreclosure Process
Before we get into the details of the VA vendee financing program, let us understand how the VA foreclosure process works.
The VA department provides many alternatives to homeowners to avoid the foreclosure process. However, if none of the alternatives work out, the property may get foreclosed.
The lender will send a notice to the borrower and the court after the borrower is unable to make the payments for at least 90 days.
After the notice is sent to the borrower, the borrower will have another 90 days to make the payments or select any other alternatives provided by the lender under the VA loan program.
If the borrower is unable to do either of these options, the lender will proceed with foreclosure.
Once the property is foreclosed by the lender, the VA buys the property from the lender to honor the security they provided at the origination of the loan. These properties are known as VA real estate-owned homes or VA REO homes.
What Is A VA Vendee Loan Program? And How Does it Work?
The VA vendee financing program revolves around VA-owned REO properties. When the Borrower defaults on a VA loan, the VA-certified lender would eventually foreclose on the property.
Since these VA loans are backed by the VA department, the Department of Veterans Affairs provides reimbursement to the lenders and will acquire these foreclosed properties from the lenders and sell them directly.
Once the VA acquires these foreclosed properties, they are called VA REO Properties.
After acquiring these foreclosed properties from the lender, the VA must then sell them. VA can sell these properties to anyone who qualifies for the loan program whether it is a veteran buyer, non-veteran buyer, or real estate investor.
These buyers always have the option to purchase these properties in cash. However, it is not possible to buy a property in cash for everyone.
For this reason, the VA offers a special loan program for selling their REO homes known as VA vendee loans.
The guidelines for VA vendee financing are similar to those of VA loans except for two things. First, VA will provide this loan to any qualified borrower – not just veterans and service members.
Second, investors are allowed to use this loan to purchase rental properties, whereas the VA loan disallows this. Just like VA loans, the VA will guarantee the vendee loan as well.
Since the number of properties owned under the VA REO portfolio is huge, the Department of Veterans Affairs usually outsources the sale and management of these properties to other companies.
In the past several different organizations have entered into contracts, however, Vendor Resource Management (VRM) currently holds the contract. And VRM’s lending unit – VRM Lending – provides all support through the VA Vendee lending program.
This means VRM Lending provides financing to people who use VA vendee financing to buy these properties.
What Are The Pros And Cons Of VA Vendee Loans?
While every loan has its pros and cons, let’s take a look what are the benefits and drawbacks of VA vendee financing.
Pros
- Loan is available to anyone who qualifies and not just service members or veterans.
- No Mortgage Insurance is required
- Flexible transfer guidelines, including low credit score requirements.
- You can get his loan with low to no down payments.
Cons
- You must have enough money to cover your closing costs.
- VA funding fees could be higher than any other conventional loans.
- VA REO homes could be difficult to find.
Conclusion
VA vendee loan program could be one of the best options for buyers if they qualify for it.
To qualify the borrowers would require an average credit score (lower than the conventional loan requirement), and a decent debt-to-income ratio.
You would also need to check the property that you are buying as these properties are sold as-is.
This means you won’t be able to put any contingencies if the property needs some major repairs.
Luckily, this loan program allows potential buyers to conduct a home inspection. If you find any major issues that you think could be a costly affair, you can back off from the deal.
