Facing skyrocketing home prices, some homebuyers are turning to companies that help them make all-cash offers in order to carve out an advantage.
Ribbon, Homeward and others will buy homes in cash on behalf of buyers, who then basically purchase the home back from the company, either using a lender affiliated with the firm or one of their choosing. Some companies will also cover shortfalls if the property’s appraised value comes in below the purchase price.
These services can help buyers avoid costly bidding wars and ensure they get the home they want. But buyers usually pay a premium to access these unique all-cash deals – and those fees can be especially problematic for VA buyers.
Companies like Ribbon typically charge buyers some manner of transaction fee, usually a portion of the purchase price. The percentage can vary depending on the company, the state where you’re buying, how fast you can close on your permanent mortgage financing and more.
The problem is that the VA loan program considers this kind of fee to be one of its non-allowable fees.
VA buyers can pay a range of closing costs associated with their purchase, but there are a handful of fees that they’re simply not allowed to pay. Real estate agent commissions and attorney fees charged by the lender are two of the most common examples.
While all but unheard of just a few years ago, this transaction fee for all-cash services has emerged as the latest example of a VA non-allowable fee.
VA buyers aren’t allowed to pay these fees – period. Veterans can’t pay this outside of closing or using gift funds. But there are ways to keep a VA loan moving forward if you’re working with a company like Ribbon.
The easiest solution is to have another party to the transaction cover this cost, whether it’s the seller or the real estate agent. Sellers have to pay this with their own funds rather than using a seller credit at closing.
VA lenders may need a contract addendum specifying who’s paying the fee to help ensure it’s itemized correctly on your closing documents.
There are no concerns if the company behind the cash offer ultimately waives the transaction fee, too.
The bottom line is Veterans can use companies like Ribbon and Homeward and their VA loan benefit together to achieve the dream of homeownership. But it’s important to understand some of the potential challenges at the outset.
Lining up the permanent mortgage as early as possible is critical.
Talk with a Veterans United VA Loan Expert to learn more about combining the power of an all-cash offer with your VA loan benefit.