The Veterans Administration also offers bargain hunting opportunities. It guarantees the purchase of homes by eligible veterans. This basically means that if the veteran defaults on the mortgage, the VA will pay off the lender and take the property back. Although technically these are REOs, they arc commonly called VA repos.

VA repos are not found in high-priced areas because the VA maximum mortgage amount is fairly low by today’s standards ($240,000). However, in modest to low-priced areas where they are found, they can be excellent opportunities for investors who are willing to buy properties “as is” and in poor condition and then fix them up. You may be able to buy a VA foreclosure for a fraction of its market price.

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Keep in mind that the VA sells properties “as is.” It makes no warranties about the property’s condition. Be sure that you have the property thoroughly checked by a competent professional home inspector. Pay particular attention to lead, black mold, and asbestos hazards, as you may be the one to pay for costly repairs.
VA foreclosures may sometimes impress you by how clean and neat they are. At other times you may be equally impressed by the run-down condition of the property.

Remember, these homes were taken back as part of a foreclosure procedure. The former owners were often months, sometimes years, in arrears in their mortgage payments. Often, they were in terrible financial condition, unable to handle even minimal maintenance and repairs. The properties may reflect this.

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In actual practice the VA guarantees the top 25 percent of the mortgage to the lender. Upon default the lender forecloses to take the property back. As part of the foreclosure process, the lender notifies the VA that it is claiming the insurance. When this happens, the VA typically pays off the lender and assumes title to the property after foreclosure. The VA then offers these properties for sale to the public. Generally speaking, the VA gives clear title.

At any given time, the VA may own more than 20,000 properties scattered across the United States. Keep in mind that these are foreclosed properties, and some may not be in the best of condition. In fact, some may be in terrible condition.

Further, the VA offers these properties for sale “as is.” It’s up to you to determine what it will cost to fix them and bring them up to investment standards.

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Although you do have to be a veteran to buy a home using a VA loan (which offers nothing-down financing), you do not have to be a veteran to purchase one of these foreclosures. They are open to the general public.

The VA hopes to sell most of its homes to owner-occupants. It may, therefore, offer its own minimum down (as little as 2 percent) foreclosed property loan to people who intend to live in the property.

On the other hand, as an investor, the minimum down payment for VA financing is typically 10 percent. However, you are encouraged (by the VA) to secure your financing elsewhere.

Types of Housing

Most of the properties are single-family dwellings, although there may be an occasional multiple-family dwelling (usually no more than four units) thrown into the mix.

The VA has an internal system of coding for housing. There are basically four codes that I’ve seen it use in California and elsewhere. They include the following.

Code A. These are the better homes and understandably, have better financing available. Typically, these are the homes that most owner-occupants will opt for. Financing includes VA special foreclosed property financing as well as veteran’s loans (the type given to vets where the VA guarantees the properties, which is what got it into trouble in the first place). The VA will always accept cash from the buyer and in this case external financing as well. 

Code C. These are usually pretty rough properties. The VA typically has marked them down in price for quick sale, and they are homes that investors should consider. However, keep in mind that the VA will only accept cash for these properties. No internal or external financing is allowed. (You can arrange for your own financing, but it’s strictly cash to the VA, usually at the time of sale.)

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If you can buy one of the VA homes for cash, there should be nothing to stop you from turning around and refinancing for a sizable mortgage once it’s in your name. Of course, you’ll have to find a willing lender.

Code T. These homes may be even rougher. However, for whatever reason, the VA will allow its own internal financing on them but not external financing. This means you can get a foreclosed property VA loan. However, time is of the essence. The VA wants these properties sold within 30 days (22 days if you go with their internal financing).

Code X. These are properties that for one reason or another will not qualify for either VA or FHA financing. However, you can get external financing from conventional lenders, pay cash, or use the VA’s internal foreclosed property financing. The closing period can often be extended for up to 60 days.