Buyer is using VA Loan - how much is usual to pay in closing?

[songsofexperience]

I'm selling my house (FSBO, but listed on MLS). I listed Wednesday, had an open house Sunday, couple came back Monday and made an offer. It was low and they wanted me to pay closing costs too. I understand with a VA loan there are some things they can't pay for and it's usual for the seller to pay closing costs. They are first-time buyers so I explained that while I would offer them what I'd offer anyone on closing, (basically the 1% I'd pay an agent in commission), if they wanted more in closing, they'd have to pay more for the home which is, I think, pretty normal, VA or not. I'm trying to find out if their lender will do the 1% origination to cover some of the associated costs. I guess my question is, can it be difficult for VA buyers because they need sellers to pay for so much?

I think I'm being pretty fair - asking is $157,800, they initially offered $150,000 and I pay closing (nice try!), I said no. They came back at $155,000 and I said it would depend on what they wanted for closing. My counter is now $156,000 and I pay $1,500 to closing or $157,500 and I pay $3,000 to closing. If they need more than $3,000 then the price goes up by as much more as they need. Does that seem reasonable? My home, is, by the way, priced a little below market. 

Thanks for any thoughts or advice - I need to go learn more about how VA loans work!

[pipeguy]

IMO don't get distracted by who their lender is, that's NOT your problem. Base your price on market value and accept that it takes more than one offer to sell a properly priced house. Case in point, I settled my mother's estate a couple of years ago, the house was old and needed to be remodeled, however the area the house was located in is a hot market where buyers purchase 1950's home, tear them down and build multi-million dollar homes.

Based on market research including local comps and recent sales going back one year I priced the property at $840,000 really just for the lot, even stated the house was a teardown and NO access would be granted to the house. At the same time a house 3 up from ours was priced at $995,000 and had some remodeling done. This buyer turned down an offer of $925k and never got another - its currently listed at $1.8 million which includes a tear down of the old house and a new house built on the property. They got greedy and turned down an above market offer. 

My first offer was $665k from a local "realtor" who said they were going to reburb the home (I knew that was a lie), highest offer during the first 2 weeks was $765k which I also turned down. I dropped the price to $815k and sold the property within a week for $795,200 (the extra $200 was due to another counter offer I'd made to another buyer for $795k.) The house was torn down and replaced with a $2.3 million dollar new house (quarter acre lot BTW). 

The point of this story is that I had determined market value at $800k, perhaps as high as $840k and I sold the property within a month and settled within 2 months of listing, bidders had to put down $10k earnest money NOT contingent on them getting financing. If your property is listed at below market value, it'll sell and for how much you get to decide. Offering a closing cost credit, or an extra 1% to the selling agent or a pre-paid home warranty are all thing you can do to make the property more attactive and sell quickly, however these are YOUR choices to make. If you think your counter offer is fair and you are willing to go for that, great, make the deal. That said if a buyer does not have financing or wants you to bend because they choose X type of financing - that's not your problem.

As a buyer, I'm going to go as low as I can without insulting the seller (like the agent that offered $665k, I told my agent that if they countered anything less that full asking after that to go pound sand - in nice terms, I wasn't that nice), as a seller I want the most I can get and still make the deal which means I might have to come down a little.

Question, why did you price the property below market value?  If you want $157k and market value is $165k, why not offer it for $164k + an advertised $4000 toward buyers closing cost? You'll net $160k before your closing costs and it's more attractive to the buyer as far as a cash-flow "deal".  

[pipeguy]

Just to add to my other post, I had a 2BR/2BH 1150 SF (we furnished) condo at the beach that I used as a vacation home - never rented, looked brand new when I sold it 6 years after buying it new. We paid $79500 for it, with a $50k mortgage which I paid off in 3 years so I owned it free and clear.  

I listed it at $119,500 with the first agent I  hired - she kept bringing me low ball offers and telling me thats the market you should accept the $110k - seemed to me she was more interested in a quick sale that looking out for my interests. Market value was $120k to $130k at the time. After a month I fired the first agent and hired a new agent - listed the Condo as "furnished" $134950 will pay $3000 toward buyers closing costs - sold the condo within a week for $132k and netted $129k with the closing cost offer of $3k. The buyer bought it on the high side of market value comps, but the $3k got them a good deal (and me too). 

Funny thing is that property went up to $180k in the next couple of years, and then crashed to $80-$90k during the real estate crash of 2005-07. Today they sell for $90k to $100k. 

Who, what type, or what company that financed this or any of the other properties I've sold, was never an issue or concern for me - frankly I have no idea what the terms were for the buyers money in any of my sales.  

[StartingOver10]

For the most part, I agree with pipeguy's statement:  the financing terms of the buyer are between the buyer and the lender and not really your concern how much they are paying for their money. 

I have a small amendment about not caring who the lender is though. There are lenders that have a poor closing ratio. In other words, they will take the application and process the loan and deny the loan after weeks/months of processing.  I'm not talking about buyers that don't qualify. I am talking about lenders whos overlays are so restrictive or ratios so tight that they only close a small percentage of the borrowers that have been pre-approved. In any given market, most Realtors have a short list of those lenders and make a wide berth around them.  You probably have no idea who they are so it is on you to make sure that when you accept an offer, that it not only has the capacity to close but the probablity to close. 

As to pricing - pipeguy nailed it. Price it at market value and if the buyer needs closing costs pay the portion that is acceptable to you. Price it below market if you want to move it fast.  It's up to you but you need to know where you are in the market (realistically).  Where I am, $1500 is not anywhere close to what it would cost the buyer for closing costs and pre-paid expenses. Here a rough estimate of the costs would be around $6000 (to close) with no downpayment. Not all vetrans need funds but many. many first time homebuyers do.  Do your research. Figure out the actual comps (this is harder than it looks) and make your home attractive to the buyers. The biggest issue I see with FSBO's is in the comp selection. IME they frequently don't account for size, age, condition, view, or neighborhood. These are important factors when considering market value. 

[songsofexperience]

Thanks! I have done my research in terms of comps between currently for sale and recently sold in my pretty large subdivision, taking into account age (there are a lot of new builds a couple hundred sq ft smaller without granite that are priced around $98 and selling around $95 sq ft and then several homes in my age range (12-14 years) that seem to think they can also get that price! I am priced very competitively compared to the other homes my age - I think I actually have one of the lowest prices/sq foot, but I also have lots of updates they don't. I know that many FSBO just toss out a number they want that just isn't realistic, but I'm a number cruncher. 

I just updated my kitchen and baths, the whole house is sparkling and staged with nary a hair out of place - this compared to others in my subdivision that still have the old formica and clutter all over. This couple came in and said, "Well, your home is gorgeous and we love it, but it's more expensive than some others." Yes, it is. Like the ones that are 100-300 sq ft smaller. I had to point out price per sq foot - the one he pointed out is priced at $97/sq ft and I'm just under $92 and have granite, stainless steel, etc. Anyway, that's really an aside - I've sold 4 houses FSBO and always paid something in closing costs so I had that factored in to what I would walk away with. This is my first time with a VA loan though - when I bought the house 3 years ago my closing costs were $4000 so I imagine their's would be comparable. I'm not averse to that, I just don't think it is unusual for them to pay a slightly higher price to offset. 

I did a lot of reading last night and while it seems for some, the program is good, the fact that they can't buy a house that needs a little work seems to work against them as does the fact that there are non-allowables. From what I'm reading, many people won't even consider an offer from someone using VA funding and this seems really damaging in high cost areas and in strong seller markets. 

Anyway. I gave them my counter last night and haven't heard anything - I just think at the end of the day they really fell in love with it, but can't actually afford it. I'm also not desperate to sell so I also don't mind waiting it out. Again, I was mostly curious about difficulties facing VA borrowers when it comes to VA assists/concessions and my reading last night was enlightening. Thanks all. 

Oh - Pipeguy - sorry, missed your question. Based on comps I think ~$159,000 is market value so it was priced to be attractive, but not way below market. In the past I have priced and offered closing costs. 

[StartingOver10]

The buyer may be trying to see if they can get their closing costs elsewhere.

A couple of comments:

1) The non-allowables for VA are very, very small. One of the LO's can jump in to clarify, if I remember correctly, it is only the pest inspection and re-inspect (if applicable)  I frankly don't remember any exclusions other than the pest inspection fee.

2) The condition doesn't have to be perfect by any means. Just no deferred maintenance. FHA and VA are similar. Your house sounds like it is in better condition than many that are financed VA.

The lender can contribute toward the buyers closing costs and pre-paid expenses, but then he has to charge a higher interest rate to get the funds to pay the buyers fees. 

I hope loan officers will respond to your post. I am looking at it from the Realtors' side (because I am one!)...

Edit: 

Just googled it and this is what shows:

Those VA non-allowable closing costs are not limited to but include:

• Underwriting Fee.
• Processing Fee.
• Mortgage Broker Fee.
• Administration Fee.
• Tax Service Fee.
• Wire Fee.
• Escrow Fee.

The lenders I use don't charge the underwriting fee or processing fee (can't charge this if you are a Realtor too), I never see a mortgage broker fee or admin fee. Tax service fee I haven't seen from one of my lenders in years, wire fee is a title charge so the title co rolls it up in their settlement fees.  Haven't seen an escrow fee (ever). So those are fees that aren't allowed to be paid by the borrower. 

When you negotiate you are negotiating a flat amount or a percentage of sales price so you don't hae to get involved with the non-allowables at all. 

[pipeguy]

OP - thanks for the additional information and while I'm not a realtor (nor stayed at a holiday in last night), I have bought and sold a LOT of product in addition to real estate. I know your question was about VA loans, and I answered in general my experiences and feelings. Since you are not in a hurry to sell and from the sounds of it - upgrades and all, I'd price it higher and say in the ad/listing WHY and then come off that as need be, but that's me (I still don't know anything about VA loans). 

[me12345]

The VA "Non-Allowables" cannot be paid by the Veteran on a VA mortgage.... This does NOT mean that the seller must pay them.... They can also be paid by the LENDER very easily. IF YOU ARE THE SELLER, JUST SAY NO! 

[StartingOver10]

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@me12345 wrote:

The VA "Non-Allowables" cannot be paid by the Veteran on a VA mortgage.... This does NOT mean that the seller must pay them.... They can also be paid by the LENDER very easily. IF YOU ARE THE SELLER, JUST SAY NO! 

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Or go to a lender that doesn't charge those fees....

[me12345]

The OP was the seller of a property that wanted to know what "He had to pay for" if he sold the home to a Veteran that was using a VA loan...so your lender answer does not apply to his situation.

In ALL VA mortgages the veteran is "Not Allowed" to pay for certain loan related fees and charges. So these items must be paid by the Seller, OR the lender....Who you want to pay for  these fees will depend on what side of the "Table" you're at.