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Why VA mortgage loans go to the bottom of the stack

Even with government guarantee, borrowers face headwinds

HW+ VA lending - couple buying home

It’s been rejection after rejection for Isabel Williams’ client, a military veteran in Port St. Lucie, Florida. Since the client began the search for her dream home earlier this year, her Veterans Affairs mortgage loan offers have been rejected over a dozen times.

Williams, the broker-owner of We Save Loans, said her client has all but given up on buying an existing home with VA financing. Instead, she is looking to buy a newly constructed home from a large homebuilder.

Homebuilders, Williams said, are more concerned with the overall investment, and don’t have the same prejudices toward and misconceptions about VA financing that individuals do.

But it might be a while until Williams’ client could actually stop paying rent and move into a home. If she is unable to wait the six months or more it could take to finish construction, she may forgo her hard-earned government benefit altogether.

“She may have to change from VA to conventional to be more attuned to the current market,” Williams said. “When people are deciding which offer to accept, the pecking order is cash, conventional, FHA and then VA.”

For loan originators who represent VA borrowers, the aversion to VA deals is confounding. From a risk-profile perspective, in addition to the government guarantee that veteran borrowers command, VA borrowers have much lower default rates than FHA loans, another government-backed loan.

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