A few idiosyncrasies in this current market and here on Oahu
Appraisal Clause
Where this comes into play for Veteran buyers is when the appraisal comes in lower than the price agreed upon in the purchase contract. In normal markets, buyers would not accept this. However, because it is such a competitive market and most houses have numerous, asking price offers, an appraisal clause is usually necessary to keep VA buyers competitive.
Appraisal clause – One thing much less common in normal markets, but something Veteran buyers utilizing their Hawaii VA home loan benefit now usually need to include is an appraisal clause. An appraisal clause is something written in the purchase contract stating the veteran agrees to pay up to a certain amount over the appraised value and/or agrees to pay the value agreed to on the purchase contract.
Where this comes into play for Veteran buyers is when the appraisal comes in lower than the price agreed upon in the purchase contract. In normal markets, buyers would not accept this. However, because it is such a competitive market and most houses have numerous, asking price offers, an appraisal clause is usually necessary to keep VA buyers competitive.
VA condos – So you have a condo you like?
Unlike most conventional financing, you need to check if your condo is on the VA-approved list. You can check if your condo is on the VA-approved list here https://lgy.va.gov/lgyhub/ condo-report. If you do not see your condo on the approved condo list, that does not mean you cannot buy it, it just means you’ll likely need to go through the condo approval process.
This can take 1-2 months and will involve your lender working with the VA and the condo association to provide the necessary documents. These could include:
- Homeowner association bylaws and budget
- Declaration of covenants, conditions, and restrictions
- Special assessments / litigation statements
- Current financials
- Plat or map
- Minutes of the last two homeowner association meetings
The VA will look at owner-occupancy rates and other potential areas which could be red flags with your VA condo purchase. Pending litigation in the condominium complex or pending assessments can be issues that could lead to VA denial of the Condo approval request.
Lava zones
Lava zones are something VA buyers will only have to worry about on the Big Island. There are only two things VA buyers need to be aware of.
First, the VA will lend in any Lava Zone. Most conventional loans do not allow lava zone 1, and neither does FHA. With a VA home loan Hawaii, you have the ability to buy in any lava zone. That being said, the VA will require “lava” insurance for at least the amount of the loan, for homes purchased in lava zone 1 & 2.
Lava insurance will vary by which lava zone the VA buyer is in, and will be more expensive in lava zone 1 than lava zone 2. It’s important to note, Lava insurance will add a significant amount to the monthly payment. Houses tend to be 100-200K less expensive in lava zone 1&2, but the increase in monthly payments due to lava insurance usually offsets most of the savings a buyer will receive from the cheaper price
https://www.benefits.va.gov/HOMELOANS/appraiser_cv_local_req.asp#:~:text=Lava%20Zones%20%E2%80%93%20The%20VA%20will,1%20and%20Lava%20Zone%202.
Water system /water catchment
Another thing common on some of the other islands not named Oahu is properties having water wells or catchment systems. Regardless of which one the property has, the VA requires a water test for a Hawaii home loan.
Click here for the particular VA circular regarding testing requirement, but usually entail water tests for ecoli, metals, etc.
Sewage system acceptability is also a requirement, usually needed for homes on the Big Island but there are still places on Oahu which have Cesspools. For Cesspools, your lender will need to check with the state/local government to confirm the proper permitting of the cesspool. If the home cesspool was improperly permitted, a new/update permit will be needed. Of note:
- If it is an unpermitted cesspool, the buyer may have to install a septic system in order to complete the purchase.
- If additions have been made to the house, then confirm the cesspool/septic can handle additions (ie was a 2 bedroom house and homeowners added another room)
