Civilians can reap the benefits of VA loans

VA loans have proved resilient in the face of financial tumult.They continue to exhibit the lowest foreclosure rate of any major loan program, despite the fact that nearly 90 percent come with no down payment. But military borrowers certainly haven't been immune to the foreclosure crisis.More than 20,000 veterans, active duty service members and reservists lost their homes in 2010. Communities located near military bases saw foreclosure filings increase 32 percent over 2008 levels, according to RealtyTrac.

The VA's Vendee Financing Program

Devastating as it is for affected borrowers, those foreclosures are swelling the ranks of a little-publicized VA program that allows civilians to purchase VA-backed properties.The VA's Vendee Financing Program is available to veterans and non-veterans alike. Investors, prospective homeowners and others can purchase VA REOs and capitalize on some of the same benefits of the VA Loan Guaranty program, which is only available to qualified service members, veterans and some surviving spouses.Investors in particular have long utilized the Vendee Financing Program to purchase multiple properties. But it can also be a great way for aspiring homeowners to maximize purchasing power.

Eligibility and requirements

Vendee borrowers may reap some of the same benefits as traditional VA purchasers, but the requirements and underwriting couldn't be more different.This is not, as the agency states, a "credit score driven product." Bank of America, which administers the Vendee program, will examine an applicant's financials, debt-to-income ratio and other key factors. But there is no credit check and no appraisal, meaning these VA foreclosures are sold as-is. That concept runs counter to a traditional VA purchase loan, which requires an independent appraisal and that homes be "move-in ready."

Purchase with no money downBorrowers planning to occupy the property can purchase with no money down, along with an option to boost the loan amount up to 2 percent to cover closing costs, prepaid costs and other expenses. Prospective investors can finance with 5 percent down and use up to 75 percent of anticipated rent to offset against the monthly payment, pending an appraiser's estimate. Investors can also purchase an unlimited number of properties.Other Vendee program benefits include:• Sellers can cover up to 6 percent of closing costs and concessions• Loan terms of 15 and 30 year fixed rate• No prepayment penalties• Low interest rates set by the VA

But Vendee borrowers are required to pay a VA Funding Fee of 2.25 percent. Closing costs can also run a bit high on Vendee purchases, although both those and the funding fee can be covered as part of the seller's six percent contribution.You can view the VA's database of its REOs online.

Pros and cons

The Vendee Financing Program can be a tremendous asset for the right buyer.

Investors with prior property management experience and the capital to cover repair costs can strike some incredible bargains. But it might be a bit trickier for some prospective homeowners. Veterans and active duty military members can certainly utilize this program, but there are some potentially glaring red flags: No entitlement, no appraisal and no financed closing costs. For many qualified military borrowers, a traditional VA purchase loan will likely represent the simplest and most secure path to homeownership. For civilian borrowers, Vendee financing represents a great way to tap into some of the benefits available to those who serve our country. The key is making sure you understand the potential pitfalls and challenges ahead.Buying an as-is property is always a gamble. Borrowers prepared to handle the worst case scenarios that can follow might find it well worth their time to learn more about this unique lending program.

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