The COVID-19 pandemic has had a profound effect on almost every aspect of modern life and business, including the local real estate market, favoring sellers and creating fierce competition between buyers and renters.
For the past year and a half, there has been a shortage of homes for sale, especially in the entry-level and mid-range price ranges. Homes that came to market in decent condition sold quickly and above asking price. Cash buyers have come to southeast Connecticut for its coveted coastline.
Homeowners who have sold in the past year have capitalized on the market, selling quickly and generally well above the asking price. But they also faced challenges. Now, as buyers, they were on the other side of the negotiating table, looking for a home to buy or rent, in a highly competitive market with few stocks to choose from.
This was Stacy Parent’s predicament. A few years ago she sold a house in Preston. It took a single day on the market to garner multiple bids. Parent hoped to move to a new home for herself and her two school-age daughters. His wish list was neither elaborate nor indulgent. She just wanted three bedrooms, a garage, and preferably staying in Preston, so her daughters wouldn’t be uprooted from school and their friendships. She preferred a neighborhood setting, where children make friends and adults get to know each other.
As a buyer, Parent had a few things going for her. She is employed as a senior ethics and compliance officer at Pratt & Whitney. Plus, she had an average budget – around $250,000 to $600,000 in New London County.
Parent also came to the table with the assurance of a VA loan. She served in the US Air Force for eight years.
Dispelling VA Loan Myths
In 1944, the United States Congress voted in favor of a mortgage guarantee program administered by the Department of Veterans Affairs. Since then, the VA has backed more than 25 million VA loans, according to the Congressional Budget Office.
A VA loan is a lifetime benefit given to active duty military personnel and veterans, guaranteeing them a fair and favorable mortgage rate and a loan requiring no down payment. The CBO reports that fiscal year 2020 was a banner year for VA loans – 12% of all single-family home mortgages that year were VA loans.
From a seller’s perspective — especially in a market where he’s picking the best of multiple offers for his home — a buyer with a VA loan is a “safe bet.” According to the Department of Veterans Affairs, eight out of 10 VA loans are closed (if applicants applied within the previous 90 days).
The CBO also studied default rates, comparing VA loans to FHA loans during the years 2004, 2010 and 2012 – notably, before the pandemic. In each of those years, the default rate for VA loans was lower.
However, misconceptions about VA loans abound, among the real estate community and even among service members.
The Navy Federal Credit Union surveyed 1,000 active duty personnel and veterans for its “Spotlight on VA Loans Report (May 2022),” which found that many respondents were misinformed about how VA loans work, which is eligible, the interest rates to which applicants are subject to, or the amount of down payment required.
The survey found that 59% of active duty and 41% of veterans think VA loans have longer processing times; 58% of active duty and 40% of veterans think VA loans will have delays because of all the paperwork involved.
“One of the myths we’ve heard from the real estate community is that it takes longer to get a VA loan approved compared to a conventional loan,” according to Jessye Jordan, Corporate Communications Specialist III for the Navy Federal Credit Union, based in Vienna, Va. “We see no significant difference in the data. It usually takes about 35 days from contract to closing in both cases. There is also a notion that there is more paperwork required, but other than the borrower’s certificate of eligibility, the paperwork is basically the same for a VA loan and a conventional mortgage.
Navigate the market
After selling her home in Preston, Stacy Parent signed up with a realtor, got her approved for a VA loan through Flagstar Bank, and started her search. She found a few houses – including one she really wanted – and made serious offers, only to lose out to other buyers.
She began to experience “buyer’s fatigue”, brought on by the grief of the cycle – the search, the search for a house, the offer and seeing it go to someone else. This has caused countless buyers to resolve to rent instead.
Parent found that renting was also his best option. A friend introduced her to a landlord to whom she was renting a house for $1,500 a month – a bargain, she said, compared to others she had seen for over $2,000. As the lease expiration date approached, she dipped her toes back into the market, hiring a new real estate agent, Sara Vegliante, the broker-owner of Sara’s Realty in Preston.
The market was still competitive. The houses were selling well above the list; they sold out in record time, and buyers had to be nimble and ready “to make the biggest decision of their lives” within hours.
“The cash buyers were coming out of the woodwork,” recalls Parent.
She bid and lost four houses before she found one – and the right house too, which ticked her most important boxes: three bedrooms, a garage, in Preston, part of a neighborhood. The two-level colonial was built in 1974. It sits on a 0.73 acre lot across from Lake Amos.
The property was listed for $289,000 on May 5 and Parent purchased it on June 21 for $323,000.
It wasn’t in perfect condition, and it was a concession that Parent realized she had to make based on market conditions. While a move-in ready home would have been ideal, these types of properties fetched prices beyond his budget.
Over time, she will have to deal with fixing leaks and mitigating mold in the garage, which had poor ventilation.
“That’s the nature of the market today. You have to settle,” she said.
As with the other offers she had made on the homes, Parent had to make a high offer – about $40,000 more than asked – and she decided to use a conventional loan rather than the VA loan she had been using. started.
“I think it’s really terrible that we can’t even use that advantage,” she said.
“Some people were waiving inspections, compared to a VA loan, where you won’t be able to and they’re a little stricter on appraisals,” she said.
“This house ended up being perfect. It needed some work, but the layout itself and the space is what I was hoping for, and we’re right in front of a lake,” she said.
She believes it is also a good investment.
“When I was buying houses in the past, my grandfather would always tell me, ‘Location, location, location! Location is key. But anyone buying a house today – unless you have a lot money to put in – you’re paying too much,” Parent said. “It’s just the deal. But for the location I got, the neighborhood I got, and even though I had to do a lot of work and invest some money in it, it’s definitely a good investment.