This is an unfortunate situation, but it does create opportunities for us as private investors. In this article, I'll explain the basics of VA loan programs and how to approach this market in order to find and invest in repossessed homes.



Who's Eligible for VA Loans?

In general, the loans are available to: Active service members Former members of the service (must meet specific criteria for length and time of service) Reservists Public Health Service members Widows/widowers (if service member's death was service-related)

Type of Properties That Can Be Purchased.

There are several types of properties that can be bought, including:

Existing single family homes. Townhouses or condos in a VA-approved project. New construction residences. Manufactured homes and/or lots. Home refinances. Certain types of home improvements

Advantages of the VA Programs.

The first advantage is these loans require no down payment.

The second is that the VA guarantees a portion of the loan. The guaranteed amount of a VA loan is called an entitlement. The current maximum entitlement for loans up to $144,000 is $36,000. The exact figure is determined by the loan amount. The maximum entitlement for VA home loans over $144,000 is $60,000. This feature protects the lender's investment if owner defaults. The VA pays the lender when this happens. In the case of default, the government can pursue home owners to recover money.

A third advantage is that the government limits the amount of closing costs, origination fees, and appraisal fees.

Fourth, rates are in line with conventional mortgages.

Finally, no private mortgage insurance is required. In fact, the VA prohibits it. Since they guarantee the loan, they don't want owners getting charged for other insurance.

The Disadvantages of the VA Loan Programs.

There is the cost of a one-time funding fee ranging from 1 ¼ % to 3% (the average is 2%). However, the fee can be lowered if the buyer makes a down payment of at least 5%.

A second potential disadvantage is that there is a maximum guaranteed loan amount, limiting the range of houses available for purchase.

The Matter of VA Repossessions.

As with HUD properties, you must go through a local, approved realtor to buy repossessed houses. Realtors often advertise these properties in the newspapers.

Keep in mind that the VA gives priority to buyers who come in with their own financing (cash). Generally speaking, although the VA handles some financing, you'll do better if you get outside financing.

Condition of VA Properties.

Property conditions range from average to "distressed." At times, the VA refurbishes homes to get a higher market price. Needless to say, you won't find any bargains here.

Inspections.

As always, you'll need to have a VA home inspected before buying it. It'll need to be done during the offering period, not after an offer has been accepted. You can definitely find some bargains in VA repos. As always, with a governmental agency, it requires good knowledge of VA rules and regulations.

I recommend you visit the VA web site to learn as much as you can and, of course, develop good relationships with realtors who specialize in this kind of property.

Key Point: Learn VA regulations inside out and cultivate good relations with real estate agents who specialize in these properties.