A VA Repo for Me � A VA Loan was not to be
by Charles Harmon
My first two "no money down" deals were maybe a bit of luck. The situation being just right and me taking advantage of them. The first was buying my first house under the GI Bill with A VA loan and no money down.
My second house was buying a near new home with no money down by allowing one of the original tenants to stay in the house for two months rent free with me taking over the loan and house ownership. I used a credit card loan to cover the two months house payments.
I could have been just lucky, although it sure didn't seem like that in other ways. I hadn't really thought much about "no money down" as a way to buy a house, those transactions just happened to be that way.
I wanted to own a mortgage
During that time of buying my second house I was also looking for another house to buy. I had met an old gentleman from San Bernardino who had fifty-five houses, if I remember correctly, and I thought it would be nice to eventually own a few houses myself.
Right now I had come to like mortgages and how easy it was to create money "out of thin air" by creating mortgages. I like figuring out things and I was planning on buying more houses and then reselling them with me keeping a mortgage on the property. That would give me a cash flow and a long-term tax right off.
Since I could get two houses with little or "no money down" why couldn't I get a third one? That first one really didn't count as far as I was concerned since it was primarily bought to live in and secondarily as an investment, besides, as far as I knew, one could only have a new VA loan on their residence.
The situation of "no money down" isn't always the case for every VA loan, and the rules have changed since I got my original VA loan. You need to check the current rules as I believe that now unless you are a first time VA Loan applicant it requires a down payment and there are some other changes. I couldn't get a new VA loan because it was an investment house, so I needed to use another strategy to purchase any more houses.
Fixer-uppers were a choice
I also thought I might be able to find a fixer-upper house. Once fixed up I could possibly sell it and carry a mortgage, thus combining my mortgage idea. I thought I might find a lower priced fixer-upper more in my price range.
I scoured the free throw-away papers looking at ads for houses for sale. Every day without fail I looked, even driving as far as 50 miles to see what was advertised and look at houses. I saw a lot of houses, but most were not true fixer-uppers and the prices were too high for the property.
I live in Riverside County, in a used to be, rural area of southern California. It still is in a lot of respects. Being fairly rural there are not nearly as many houses for sale around here as in a big city like Los Angeles or San Diego, both about an hour away.
The prices in those areas were too high for me anyway. I was lucky the prices of many houses within about 5o miles of me were relatively reasonable in cost, except for those in Orange County some 40 minutes away. Too bad I didn't have a lot of money to work with because I saw some nice, reasonably priced houses, but they required no fixing up.
I felt I could work on fixer-uppers in my spare-time but I never found any reasonably priced ones. Everything I saw was much too high priced for a fixer-upper as far as I was concerned.
What about HUD or the VA?
From watching houses that were sold and talking to real estate agents I determined most houses from the VA/HUD in my area were going for more than they were worth. In other words, people were bidding too much for them, thinking they were getting a bargain.
There was heavy advertising on those repos and most people probably assumed you would get a good deal. That wasn't always true. I remember one house I looked at. I was going to bid $78,000, but at the last moment decided not to bid. I was not sure the house was worth it.
As it turned out it sold for $93,000 as a HUD repo. But it was probably worth only about $80,000 or in that price range. Some times and in some areas, HUD/VA repos are very good deals, but not always, so do your homework before you bid.
Bidding on a VA property
While looking in the papers and also checking the HUD and VA repos I couldn't find many houses in nice areas. Most were in areas that I didn't want to buy in. Then bingo! I found a nice home in Loma Alta, near Ontario California, with a nice size yard, a big pool, and the house was fairly large.
It was only a few years old. The only thing wrong was the pool was trashed and needed cleaning. Big time. It was right before the bidding closed so I hurriedly put in a sealed bid of $103,000 which I felt was reasonable and not over bid. I figured it would be too risky bidding more.
I won the bid!
Surprise, surprise I won the bid. Was I lucky or what? What next? I checked with the VA to get the details of their financing. Surprise again. They were not offering financing like they normally do on repos.
In their description of the terms it had said something about getting your own financing, but it seemed in the context it was in they were referring to investors buying several houses at a time or those buying other than single family houses. I had interpreted it wrong and now I had to find financing. I didn't expect that at all otherwise I would never have bid.
Whoops! � I needed financing
I had three days to procure financing. I called many lenders and all told me the same thing. I needed to put a huge down payment, which I didn't have, to get a loan. After a lot of fruitless calls I came to the conclusion I just wasn't going to get a loan for any kind of down payment I could afford.
I had two houses at the time and all the lenders considered me as an investor. That almost always requires more money down compared to someone who was going to live in the house. I think the lowest down payment I could get quoted was 15% down, but that was too much, even though it was lower than most quotations.
No financing for me
I sheepishly called the VA, explained my situation and asked if they would allow me to rescind my bid or could they disqualify it since I was unaware of the financing restrictions. Being a government agency I didn't expect much but I was pleasantly surprised when they did just that. Furthermore, there was no penalty.
Understand VA/HUD auction rules
I felt whole again. Back to the drawing board. I felt there would be other chances to buy a house. I learned a lesson there. One needs to understand thoroughly, any auction rules or descriptions, before they make a bid.
In my particular case, when I found out about the property above, it was on the last evening of the bid and it was not possible to contact anyone at the VA to answer my concerns. I was so anxious to bid, hoping to get a good deal, that I let that override my normally cautious actions. I won the bid alright, but lost the house.
Copyright © Charles Harmon
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1 comment:
wow, what a story. Good luck with your future investing!
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