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VA loan disappointment :( Unsure where to go now.
We were supposed to be closing May 2, and everything has been fine until the appraisal. People told the the appraisal would make or break it all and they were right evidently. We live in a very rural area, town of 400 people and nearest towns are a minimum of 13 miles away either direction. I just got this email from our Loan officer yesterday 
I sincerely apologize for the delayed response. I finally heard back from the appraiser. He is firm in his appraisal. In fact, he was a little bit smug in his response to me.
Unfortunately, we can?t use the appraisal because the properties used as comparable sales are too far away from the house you want to buy. As long as the house is classified as ?earth contact,? it falls under the Special Property Guidelines that all national lenders follow. The guidelines require that sales of comparable properties must be in a close radius and must have been within the last year.
I talked with my colleagues here to find out if there is any way we can help. The only scenario that might work is that you could make a down payment of 5% or more and we would hold the loan in our portfolio rather than put it in the GNMA pool (that?s a technical term, sorry), which requires us to follow national guidelines.
Your best chance of getting financing is to go to a local lender and apply for a loan. A small bank in your state might be able to do a mortgage for the house because they don?t have to follow national guidelines for their portfolio lending. If you decide to do this let me know and I will forward your entire file to the new loan officer and offer to help in any way I can.
I will call you tomorrow to discuss this. I wish I had better news for you.
Now we are unsure where to go with this, not sure I completely understand him. I guess we will go start talking to whoever we can locally, but we really don't want to do a conventional 20% down loan.
Re: VA loan disappointment :( Unsure where to go now.
She won't be able to do FHA, since VA and USDA all follow similar guidelines. The issue is an earth home is considered a unique property. In order to support its value, there must be other earth home comps in a reasonable area.
What your lender is saying is that you may be able to obtain financing through another bank that does not sell their loans, rather keeps them in house. Credit unions are often able to do this, but you will need a down payment. Not necessarily 20%.
Welcome to the nest
This isn't just a VA problem - you'll probably run into this with any major financing source. I'm sorry for you that your agent didn't warn you before now.
Being in a small town will help you and hurt you. Hurt you because there are no comps, but help you because you can walk into your local bank and talk to the guy who's your uncle's cousin and get the loan you need. (That's what your lender was talking about with keeping it in his portfolio - if he keeps the loan local, in-house, it doesn't have to follow national guidelines like you're facing.) DH is from a rural town of 12,000 and I am consistently amazed at how easy it is to call up the bank and get a loan for anything at the drop of a hat.
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Are you purchasing an earth berm home? As in at least one of the sides of the house are in the ground, or the ground is built up to it? I sounds like that's what they meant when they said ?earth contact"
To be honest with you, it will be very hard to get any financing for a non traditional house like that in a very rural area. If you really want the house you're going to have to do some serious shopping around. There's a good chance though, that no one is going to want to finance the property with out a seriously large downpayment.
Your realtor should have known better, and should have told you ahead of time that financing such a property was going to be very difficult.
If you really want the house, take the time to shop around. Get a copy of the appraisal, bring it with you to the local banks and hopefully they can make a preliminary decision based off that before making you pay for another appraisal.
It sounds like you can still work with him, you'd just have to do a 5% down payment (bolded). I'd probably at least try that, since you've already done so much work with him. Or go to a local bank and see if you can do FHA with 3.5% down.
I'm guessing that with the VA loan, you weren't planning to put any money down as the DP. That would make me nervous, personally. We put the minimum down as DP (FHA, so 3.5%) only because we used > 10k in cash to renovate the house before we moved in.
But, I understand your disappointment in thinking the deal was going fine, then founding out about a huge snag. That would be really disappointing to me, too.
GL, whatever you do!
Try a credit union or a small local bank (they may require you to open an account as a condition of giving you a mortgage which is no problem). We opened a checking & savings which then was designated for house related expenses.
What is "earth contract"?
This isthe house we are wanting, an earth contact(berm) home. Three of the walls are concrete, one in front is brick. Inside is finished just like a normal Ranch style house. Most of the three surrounding walls are covered by earth, buried into the ground basically. I think the LO didn't tell us because he didn't know what an earth contact was and our realtor has only ever done one other VA loan in her career
We've come to the final step with this company I guess. I spoke with the LO finally tonight...he's been MIA for over a week as far as a phone call. I have to get our realtor to talk to the appraiser and see if he is willing to drop the earth contact description....now I don't see that happening so we will probably be moving forward with whoever else we can get to deal with this property.
How badly do you want the house?
The VA loan program is a really good one, so if I was in your position, I would have to REALLY love this house in order to give up on the VA financing bit. Sure, you could do a conventional with 5% down, but then you're also likely going to be paying PMI, which you wouldn't do with a VA loan. That means your monthly payments might be higher once you include PMI.
If your contract to buy the house has a financing contingency, you can walk away if your financing doesn't come through. If you can't get VA financing, as you initially planned, I think you should be able to get out of the contract.
Then again, if you're madly in love with the house and there aren't any other options in the small town that will fit you, you might have to go with a conventional loan from a local bank/credit union.
Mr. Sammy Dog
We do really want the house, it's perfect for us. It got land, backs up to the baseball field of the school making it very easy for kids to walk to school for the rest of their school careers. We are currently working with our local bank. Trying to do 10% down. Unfortunately it's a ARM loan with 5.5% at a minimum interest(cap of 11% although they've never gone over 7.5% in the past 10 years). I have my doubts we'd ever be able to refinance with anyone else since the appraisal value would always be an issue. Also still dealing with the online mortgage company. They seem to be unable to find the appraisal that the VA appraiser adjusted and resubmitted to the VA portal. I don't know why he just won't tell me to go somewhere else but our LO still seems like he wants to do this loan....