VA Vendee Loan

The VA Vendee loan program is a little-known mortgage option tied to VA-owned properties. While it shares similarities with traditional VA loans, it operates under a separate structure with distinct eligibility and property requirements.

In this article, we’ll explain how the VA Vendee program works, where these properties come from, how financing is structured, and what both homebuyers and investors should understand before pursuing this option.

The VA Vendee Loan Program

The VA Vendee loan program centers on VA-owned real estate (REO) properties. When a borrower defaults on a VA loan, the VA-approved lender may ultimately foreclose on the home. Because the VA guarantees these loans, the Department of Veterans Affairs can take ownership of certain foreclosed properties and resell them directly. Once acquired by the VA, these homes are classified as VA-owned REO properties.

After taking ownership, the VA markets these properties for sale to veterans, non-veterans, and investors. While buyers may purchase VA-owned homes with cash, many rely on financing. To make these purchases more accessible, the VA offers VA Vendee loans specifically for buying its REO properties.

VA Vendee loans follow many of the same underwriting standards as traditional VA loans, with two key differences. First, they are available to qualified borrowers regardless of military status. Second, investors may use VA Vendee financing to purchase rental properties, which is not permitted under the standard VA loan program. Like traditional VA loans, VA Vendee loans are backed by a VA guaranty.

Due to the size of the VA’s REO portfolio, the Department of Veterans Affairs contracts with a third party to manage and sell these properties. Vendor Resource Management (VRM) currently holds that contract, and its lending division, VRM Lending, issues VA Vendee loans. As a result, borrowers using this program receive their mortgage financing through VRM Lending.

VA Vendee Loan Benefits

VA Vendee loans offer several advantages similar to traditional VA loans, including:

• Financing with little to no money down
• The ability to roll eligible origination and funding fees into the loan
• A 2.25% funding fee (charged on most VA Vendee loans)
• 15- or 30-year loan term options
• Competitive interest rates
• Seller contributions toward certain closing costs
• No prepayment penalties
• No private mortgage insurance (PMI) requirements
• No appraisal requirement

VA Vendee Loans for Owner-Occupiers

For people looking to purchase a primary residence, the VA Vendee loan can be a great option. Most importantly, it provides owner-occupiers a zero-down mortgage option, even if they don’t qualify for a traditional VA loan. But, potential buyers also need to consider the below challenges to the VA Vendee loan program.

Limited Supply

There simply aren’t that many VA REO properties available. Yes, areas with large military concentrations tend to have more, but the supply remains limited. This means that, as an owner-occupier, you’ll likely need to prioritize location or financing.

If you prioritize location of your new home, you may not find an available Vendee program home in that area. Alternatively, if you prioritize using the VA Vendee program, you may need to move to a new area to purchase a home.

Property Condition

Additionally, VA Vendee homes are sold “as is.” Unlike a normal VA loan process, no minimum property requirements (MPRs) exist for Vendee homes. This typically doesn’t concern investors, as they factor repairs into investment budgets. But, owner-occupiers need to be careful that they don’t purchase a home in need of significant repairs that turns into a money pit.

Fortunately, the VA Vendee program allows for an inspection period. Therefore, before closing on a home with a VA Vendee loan, homebuyers can complete a full home inspection. If this inspection uncovers major issues, buyers can leave the deal.

VA Vendee Loans for Investors

For investors, the VA Vendee loan program offers several advantages that can make purchasing rental properties more accessible and cost-effective.

Low Down Payment Requirement

With most conventional mortgages, investors need to put at least 20% down on a rental property. With a VA Vendee loan, they can close with as little as 5% down. This makes this loan product a potentially outstanding option for building an investment property portfolio.

Potential Inclusion of Future Rent in DTI Calculation

While not guaranteed, investors can potentially apply up to 75% of a property’s future rent payments – as confirmed by an appraiser – towards their debt-to-income (DTI) ratio. To qualify, they’ll need to show a demonstrated track record as a landlord, typically via two years of tax returns.

The decision whether or not to include future income will ultimately be made by the lender.

No Limit to the Number of Vendee Loan Investment Properties

Many lenders set a limit to the number of outstanding investment property loans they will allow for a borrower. This means that, if you hit a lender’s ceiling of outstanding mortgages, they won’t approve your next one. The VA Vendee loan program doesn’t impose any limits, making it a potentially great option for investors.

I’m Interested In the VA Vendee Loan Program – What Next?

Step 1: Pre-qualify with VRM Lending

Before searching for properties, borrowers should pre-qualify for a Vendee loan. This ensures that, before spending a ton of time and effort looking for a new home, you know that you’ll likely qualify for the loan. To pre-qualify, borrowers will talk to a VRM loan officer about their overall financial picture. Then, underwriters will review each case individually to confirm whether or not you meet pre-qualification criteria.

Step 2: Find an Eligible VA REO Property

Once you pre-qualify for a VA Vendee loan, you next need to actually find a home. All of the VA REO properties for sale are listed by local agents through the Multiple Listing Service (MLS). But, people can also search for homes directly with VRM.

Step 3: Apply for Your VA Vendee Loan

After finding a home, you’ll officially apply with VRM for a VA Vendee loan. This application will include:

• Income verification
• Social Security number verification
• Credit check authorization
• Property information (address & desired loan amount)

Once you’ve submitted this info, the loan officer will run a credit check and send you an initial disclosure. At this point, you’ll decide whether or not to proceed with the VA Vendee loan.

Step 4: Loan Processing and Underwriting

If you decide to proceed, your loan officer will forward your credit information and full mortgage package to an underwriter. The underwriter will then review the entire package to determine if it meets lending requirements.

Step 5: Sign Your Closing Disclosure and Close the Loan

Once the underwriter conditionally approves your application, VRM will send you a closing disclosure (CD). This includes all of the loan details, and it must be received and reviewed at least three days prior to closing. After acknowledging receipt of the CD, you’ll sign all the closing documents, and the lender will organize the release of funds to purchase the home.

Final Thoughts

For owner-occupiers who do not qualify for the VA loan, the VA Vendee loan serves as a great path to homeownership. For investors, the Vendee loan offers an outstanding opportunity for buying rental properties with as little as 5% down. While supply of available homes remains limited, homebuyers – primary and investor alike – should consider the VA Vendee loan program.

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