Overcoming obstacles and bias against VA loans.

Byline: William Morris

For military service members and veterans, getting approved for a government-backed mortgage is only the first step. Perhaps more difficult is finding a home seller that will accept it.

The U.S. Veterans Administration guarantees a zero-down-payment mortgage as one of the benefits offered to current and former members of the military, often on very favorable terms compared with other types of loans, said Steven Brand, a manager and loan originator at Hancock Mortgage Partners and president of the Twin Cities chapter of the nonprofit Veterans Association of Real Estate Professionals, or VAREP.

Within the real estate industry, however, there's a bad odor clinging to VA loans, he said, recalling hearing many times in the beginning of his career from peers who said VA loans were harder and more time-consuming than other alternatives.

"Historically, the VA appraisal process has been difficult. And it's gotten a lot better in the last six to eight years," Brand said in an interview. "So real estate agents who've been around for a long time, who might have had a bad experience with a VA loan 10, 20 years ago, just want to stay away from them now."

That avoidance shows up in two main ways, Brand said. Many listing agents advertise homes to buyers with other loan types, even mortgages backed by the Federal Housing Administration, but don't check the box for VA loans, despite the FHA and VA loans having "almost identical" appraisal requirements, he said.

Brand's group analyzed home listings between $200,000 and $450,000 in Minneapolis and St. Paul through Memorial Day this year, and found that nearly 3,700 were listed as accepting FHA financing, but only 1,178, barely 30%, were also listed as accepting the VA loan.

"I truly believe that real estate agents have more of a fear of checking that box for VA," Brand said.

Veterans can also run into trouble with loan originators who don't want to underwrite VA loans, or in multiple-offer situations, where a listing agent might encourage the seller to choose a buyer with a non-VA loan, even at a lower price, to avoid the perceived hassle and expense of dealing with that financing.

"When you find out that the home actually sold for a lower price than what your veteran offered, then it's a kick in the face," Brand said.

It's not just in the imaginations of Brand and his buyers. There definitely are selling agents that are reluctant to accept offers backed by a VA loan, said Robert...