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)

The VA home loan program provides numerous benefits over other types of loans. If you are a veteran and looking to buy a house, this is the best, quickest, and most cost-effective option for you. The application process is simple, and a pre-approval can give in as little as an hour. There are also flexible underwriting guidelines, with the most lenient debt-to-income ratios allowed, as well as no down payment or PMI requirement. In addition, VA loans have competitive interest rates that can be as low as 2.25% APR with no prepayment penalty.

But you likely know all these things and the title of this blog is Advanced Strategies for your Hawaii VA Home Loan purchase, not VA Home loan 101. Let’s get into advanced strategies for utilizing your VA Home Loan Hawaii benefit.

Aerial panorama of the west coast of Oahu with Makaha Valley and Papaoneone beach. Hawaii, USA

What to do if you are tight on money for closing costs?

I want to provide a few options other than what lenders usually recommend, which is taking a higher interest rate for “lender credits”. This option should rarely be your choice unless none of the below apply to you and/or you are not able to take advantage of them.

• • The seller can provide up to 4% back to cover closing costs
    • As a VA buyer, you can ask the seller for a certain amount of cash back to cover the closing costs. 4% will almost always be well over the closing costs here in Hawaii. Further, in this seller’s market, it will be difficult to ask this when many offers are going over the asking price. This leads us to option ii.
    • After the seller accepts your offer, ask to increase the sales price by whatever amount you want them to contribute for closing costs. If you desire $7,000 and the accepted offer is $800,000, then ask to amend the contract to 807,000 with the seller giving you $7,000 towards closing. This is a simple way to roll your out-of-pocket closing costs into your VA Loan.
    • A twist on this method is to wait until the appraisal is completed. Providing the appraisal comes in higher than what you are under contract to buy the property for, ask the seller to increase the sales price to the appraised value and give you that money as a seller’s credit towards closing costs. Both options are dependent on the appraisal coming in at value.
    • If you have PCS’d recently and your savings are short, you can take a 1-3 month advance on your base pay within 30 days of PCSing or up to 60 days after your arrival at your new duty station. You just have to fill out the DD Form 2560 and submit it to your local comptroller officer for your 1-month advance. For 2-3 months you will need your Commander’s signature and approval from the comptroller’s office. One thing to note, this is only recommended if your debt-to-income ratio is low, meaning you have little debt. If you have a lot of debt, or you are buying a more expensive home, speak to a VA loan specialist to see if this is something you can do.

Buying your home as an investment? Why not buy a multi-plex with your VA home loan benefit?

If you are truly buying your home as an investment, and not something that will be a forever home, why not buy a multi-plex? You can buy a duplex, triplex, or quadplex with your VA home loan benefit. Often, the income generated from the other units will cover the mortgage and the VA buyer will essentially be living rent-free!

Hope these tips help! “