When you find a property you want to buy and finance using your VA home loan benefit, the next exciting part begins—the offer. You and your agent found the listed property and it meets your price range and the amenities you need, so now it’s time to sharpen the pencil and get the ideal price. You want to offer the lowest price you think the seller will accept and after putting your heads together with your real estate agent, the offer is made.
The seller agrees with your offer and you celebrate, just a little, and then order a property inspection. After just a few days, the inspection report is delivered to you. The property inspector crawls all through the house, from basement to attic and looks for things seen and unseen by the unprofessional eye. After the review, you see that there are a couple of things that give you pause. The hot water heater is completely out and needs replacing and the HVAC system is also on its last leg. Your original offer was for $275,000 but the cost to replace the water heater and HVAC is close to $10,000.
You and your agent then make a new offer based upon the $10,000 repairs. Your new offer is $275,000 and the seller must replace the water heater and HVAC. The seller says “No” but will provide a “repair allowance” at the closing table in the same amount, for you to do with whatever you wish. But not so fast.
Your VA lender will reject the repair allowance language. There’s no way to make sure the $10,000 was used to make the needed repairs. In essence, it’s a cash credit to the buyer. A repair allowance won’t work. The seller can reduce the sales price by $10,000 or pay for the buyer’s closing costs or a combination of either, but providing a cash credit at the closing is a show-stopper.