Providwell versus existing options.
Often, our clients find themselves in a position where they would like to sell their home, but have minimal equity. This creates a challenge because home sellers typically rely on the home’s equity to pay the selling costs- including realtor commissions and other transaction costs. Traditional options include coming out of pocket to pay these fees, or undergoing a short sale or Foreclosure.
The Math:
Typical selling costs in Southern California are about 6%. That comprises realtor commissions averaging 5% and Title/Escrow/Other of about 1%. So, in order for a seller to complete a transaction and use equity to cover all costs, they need about 6% commission, or a 94% loan-to-value.
In 2021, there were 349,917 VA purchase loans with zero down payment. Of those, 80% also paid a Funding fee of about 2.3%. So all of these Vets started their homeownership journey with zero or negative equity.
Over time, an amortizing loan- such as a VA loan- will pay down the balance. Meanwhile, home values will fluctuate. There will be a period between a purchase and the time a home achieves 94% Loan-to-value. That might be very short, such as 2019-2021, when we saw double digit price appreciation, or it might take longer if the market is soft or declining. During this period, what does a homeowner do it they need or want to sell?
Traditional options include:
Coming out of pocket
Short Sale (Called a Compromise Sale for VA loans)
Foreclosure
Hold onto a home that the Vet no longer wants.
If the Vet Comes out of pocket, they preserve their credit (no late payments, and no loss by the lender). Also, their entitlement is fully restored. However, this takes money, which might not be desirable or affordable.
Short Sales and Foreclosures both damage credit and cost the Vet a portion of their entitlement. The effect on credit will be significant and both of these routes will limit the Vet’s ability to buy another home for a long time (up to 7 years). The entitlement loss it equal to the claim paid by the VA. This is gone forever, unless the Veteran pays the VA back.
There are many reasons a Vet may want to sell and many reasons that keeping a home might not be desired or possible.
Providwell solves this sales challenge by navigate one of the VA loan’s little known or used Loan benefits – Assumption. By crafting a transaction that allows a home buyer to assume the Vet’s mortgage, we avoid Short Sales, and Foreclosure and generally, the seller doesn’t need to pay anything out of pocket.
How? VA loans carry better than market terms. This is part of the VA’s “thank you for your service” by promoting affordable Veteran homeownership. When a non-Veteran assumes a VA loan, they acquire these terms and as a result, are less concerned with property price or equity. We present the transaction in a way that makes financial sense for the buyer. Transaction costs are paid by buyer.
This results in an improved outcome for all parties involved. The Seller avoids damage to credit, loss of entitlement and out of pocket costs. The buyer acquires a house that is more affordable that traditional FHA or conventional options. The VA avoids paying a claim. The loan servicer avoids costly short sale or foreclosure actions. Providwell earns a commission for a successful transaction.
