Military Families Struggle to Buy Homes in Hot Real Estate Market

The ultra-competitive real estate market has seen record-high listing prices in some regions, and some homebuyers are struggling to compete. Military veterans have been particularly impacted, according to a Business Insider Report. VA loans, a popular home loan option for many former military members, are losing out to other cash or conventional loan offers when multiple offers have been submitted.

According to Business Insider, one military family went against the advice of their realtor and offered $60,000 above the asking price for a home in Durham, North Carolina. They still lost out to a buyer with a conventional loan. Simply put, if multiple offers are on the table, a VA loan will not win.

“We’re going to lose every time,” the realtor, Melissa McHarney, told Business Insider.

What Are VA Loans?

There are numerous loan options available for potential homebuyers, and one of the most popular options for qualifiers is the VA loan. The loan is issued by the government and backed by the U.S. Department of Veterans Affairs.

According to BankRate.com, VA loans are “available to people who are actively serving in the military or who have served and received an honorable discharge.” In some cases, family members of service personnel are also eligible.

One of the main reasons VA loans are an attractive option for eligible buyers is the no down payment requirement. That’s a great option for first-time home buyers without built-up equity or savings. However, they are not the favorite option for the seller.

Why Are VA Loans Less Attractive to Sellers?

Mark Mayoras, a real estate agent and a retired colonel in the U.S. Army, noted in the Business Insider report that while the current real-estate market isn’t necessarily discriminatory against military, “it’s one step short of it.”

Because VA loans are government backed, they come with more restrictions and requirements than a conventional loan or cash offer. Those complexities can be a turn-off to sellers. Chris Birk, vice president of mortgage insight at Veterans United, a VA lender, told Business Insider that “sellers being required to pay closing costs or VA appraisals coming in lower than conventional appraisals often lead sellers and agents to seek only cash or conventional offers.”

Birk added: “These are veterans and military families who have served our country; they’ve earned this benefit. It feels like the least you can do is let them make an offer and let them compete.”

Similarly to a VA loan, an FHA loan, which may only require as little as three percent down, is government-backed with more complex regulations. An FHA loan will often require private mortgage insurance (PMI), an extra recurring fee until homeowners reach 20 percent equity.

What Trends Will Continue?

A Wall Street Journal report in April stated the housing market is nearly four million homes short of meeting buyer demand. The gap has widened dramatically since the onset of the pandemic, as builders struggled to keep up with demand and surging material costs. Since early 2020, lumber prices in the United States have increased more than 200 percent.

Will lumber prices settle as the vaccine rollout continues and the pandemic recedes? It’s unlikely, according to some experts. Dustin Jalbert, senior economist at Fastmarkets RISI, recently told Fortune that he believes the market is in trouble and “could spiral out of control in the next few months.”

Much like the uncertainty around building material costs, it’s unclear what the future holds for the housing market. But as long as sellers continue to receive dozens of offers, government-backed loans like the VA loan will likely struggle to compete.