Veterans and service members ask me this all the time. Yes, a VA loan on a HUD home works, and on more HUD homes than most agents think. The catches are about the house, not the loan. There's also a second kind of government foreclosure your VA buyers should know about: homes the VA itself took back and resells. Here's how I explain both to agents, and why you should always check the VA's current rules before you promise anything.
The short answer
On HUD homes coded IN or IE, VA financing usually works, subject to VA's own appraisal. On UI homes it's harder, because VA has property standards much like FHA's, and the same problems block the loan. VA buyers order their own appraisal. They don't use HUD's FHA appraisal, and they don't use the $100 down incentive. That one is FHA only, and VA buyers may not need it anyway. VA-owned homes are a separate thing. They're sold by the VA through its property contractor, listed on the MLS, and open to anyone, veteran or not.
Step by step: VA on a HUD home
- Read the code. IN and IE homes are usually fine for VA. UI homes usually need repairs VA won't close without. See HUD codes IN, IE and UI.
- Plan the VA appraisal. The lender orders it through VA. The appraiser needs utilities on to test systems, so file the utility request early. See HUD home appraisals.
- Budget time. The VA appraisal plus a utility turn-on can eat a couple of weeks of the closing window.
- Use the owner-occupant window. A veteran who'll live in the home bids in the owner-occupant period like any other owner-occupant.
- Decide on closing cost help. You can ask HUD to pay part of closing costs in the bid, same as any buyer. It lowers the net. See how to write an offer on a HUD home.
- Ask about the funding fee. It can usually be financed. Some veterans with a service-connected disability rating are exempt. The lender confirms using VA's funding fee page.
- Check well and septic rules. Rural homes often need a water test and septic check for VA. Plan for both.
HUD homes vs VA-owned homes
| HUD home | VA-owned home | |
|---|---|---|
| Came from | A failed FHA loan | A failed VA loan |
| Where it's sold | HUD Home Store bidding | MLS, through VA's listing contractor |
| Owner-occupant head start | Yes, an exclusive window | Generally no; offers weighed from day one |
| Who writes the offer | A HUD-registered broker | Generally any licensed agent |
| Condition | As-is | As-is |
| How the winner is picked | Best net to HUD | Best net to VA, clean terms |
Both are priced off an appraisal, both sell as-is, and both can drop in price if they sit.
A little Vendee history
For years, the VA offered its own loan, called Vendee financing, just for homes the VA owned. Buyers didn't need military service to use it. It allowed low or zero down for owner-occupants and charged no monthly mortgage insurance. It also didn't use a veteran's VA entitlement. I've always called it a tool for the right house, not a loan you shop with, because VA-owned homes are rare.
Here's the key: programs like this change. VA's funding fee page has listed a Vendee fee, but servicers, terms and availability can shift. Before you mention Vendee or VA-owned listings to a buyer, check the current status at va.gov home loans and with a lender who does VA files.
How to explain it to your client
"Your VA loan can work on this HUD home. The house just has to pass VA's appraisal, which is separate from HUD's. That means we'll get the utilities turned on so the appraiser can test everything, and that takes a little time. You won't need the $100 down program, because that's only for FHA. Your lender will show you the real numbers. And if a home the VA owns comes up, I'll check the VA's current rules for those before we write anything."
Watch-outs
- UI homes. Most will not close with a regular VA loan. Look at 203(k), renovation loans or cash buyers instead.
- The $100 down myth. It's FHA only. Don't let a VA buyer think they're missing out.
- Separate appraisal, separate value. The VA value can differ from HUD's list price. HUD still won't lower the price.
- Repairs called out by VA. HUD fixes nothing. Any fix before closing needs HUD's written OK, and the lender decides how to handle it.
- VA-owned inventory is thin. Some months there's almost nothing. Set alerts and keep buyers pre-approved.
- Don't promise Vendee. Confirm it exists and on what terms before you say the word.
Further reading
- Using a VA loan on a HUD home (denver-hudhomes.com)
- VA foreclosures in Colorado (denver-hudhomes.com)
- VA Vendee financing (denver-hudhomes.com)
This is training for real estate agents. It isn't legal, tax or lending advice. A licensed loan officer sets loan terms. Check with your managing broker.
Questions
Can a VA buyer use HUD's FHA appraisal?
No. VA requires its own appraisal through VA's system.
Can a VA buyer get the $100 down incentive?
No. It's an FHA program. VA has its own down payment rules, set by VA and the lender.
Do you have to be a veteran to buy a VA-owned home?
No. VA-owned homes are sold to the public.
Is Vendee financing still available?
Check the current status at va.gov and with a VA lender. Program details change.
Can HUD pay closing costs for a VA buyer?
You can ask in the bid, same as any buyer. It lowers HUD's net.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.