Despite its record-breaking prices and fierce bidding wars, the current housing boom has challenged even the most wealthy buyers. 

Those who finance their purchases through mortgages backed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) often face even higher hurdles.

Sellers and listing agents who weigh multiple offers often reject bids from buyers who use FHA and VA loans. However, real estate professionals say with absolute certainty: Sellers place the highest value on cash offers followed by offers financed with a 20% down payment. It is not uncommon for FHA and VA buyers to be left out of bidding wars.

If the seller receives too many bids, the analysis often eliminates proposals backed by FHA or VA home loans. Conventional wisdom says VA or FHA loans are riskier because of their low down payment and laxer credit requirements.

The National Association of Hispanic Real Estate Professionals' Gary Acosta says FHA and VA buyers are at a disadvantage in today's market. "It's hurting first-time homebuyers across the board because they're more likely to use government programs," Acosta said.

A comparison of VA, FHA, and conventional loans

There are fewer restrictions on VA and FHA loans than on conventional loans. The standard down payment is 20%, but VA loans require no down payment, while FHA loans require 3.5%.

When a buyer cannot pay a down payment, what will they do if the appraisal ends low? Sellers feel there is too much uncertainty associated with VA and FHA loans.

It has made great strides toward streamlining its once-clunky processes. Veterans can now quickly apply for VA loans online instead of waiting weeks to be declared eligible.

VA lenders have tried to dispel VA loans’ myths, but old reputations have stuck around.

Tips for borrowers: Find a qualified Realtor

This month, Brown addressed fellow agents at the National Association of Realtors' annual conference, urging them to rethink their FHA and VA loans stereotypes.

She argues that mortgage programs have a crucial role in the housing market. First-time buyers can purchase a home with an FHA loan, and veterans can obtain a VA loan for their current or former service.

Agents familiar with FHA and VA loans can represent borrowers using those loan programs. When it comes to government-backed loans, a Realtor with a stellar reputation can smooth over some of the reluctance, says Acosta.

Tip for borrowers: Choose a lender who takes your side

Borrowers with VA loans say Floyd is an active advocate. Floyd usually calls the seller's agent after submitting an offer to alleviate any concerns.
Floyd is also a VA borrower. 

As a former Army infantryman, he said he likes the VA mortgage program's no-down-payment option. Floyd had the money for repairs, but he preferred financing the entire purchase price.