Jonathan HoSee, 39, a Marine master sergeant whose 20-year military career includes wartime duty in Iraq and Somalia, is fighting tenaciously for a chance to use his veteran benefits to buy a larger house for his family.

In the past three months, HoSee has tried to buy two houses in Winchester and Murrieta with a Veterans Affairs mortgage only to see each deal fall through.

HoSee is among the veterans whom real estate experts say are victims of a loan program meant as a military benefit that is working against them. Some complain about the time it takes the VA to process loan applications, while others cite the VA's refusal to finance properties in need of repairs, overly conservative appraisals and requirement for sellers to pay a portion of closing costs.

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David Bauman / The Press-Enterprise

Jonathan HoSee, 39, retires from the military on Friday and is trying to use his VA benefit to purchase a home because the program does not require a down payment. But on two occasions, in Murrieta and in Winchester, an appraisal that he says is too low has blocked the loan.

The Department of Veterans Affairs home loan program, introduced in 1944 to help soldiers returning from World War II, enables active and retired military personnel to buy houses with no required down payment. The federal government guarantees about 25 percent of the loan in the event of a default.

Houses that qualify for VA financing must meet minimum standards for health, safety and soundness and appraise for the sales price. These guidelines, say VA officials, are intended to protect veterans and their families.

In a normal market where sellers spruce up their houses to get the best price, the VA requirements are not onerous, say real estate experts. But today's housing market is dominated by foreclosures, a large portion of which are left in disrepair by their former owners.

Foreclosed houses often have problems unacceptable to the VA such as broken windows, faulty plumbing and electrical wiring, holes in the walls, leaky roofs, missing air conditioning or a missing stove. Such houses cannot be purchased with VA loans unless the bank owners bring them up to VA standards.

checking paint

"The VA lenders are the pickiest of the bunch," said Jeff Bothwell, an agent for Prudential California Realty in Riverside. Bothwell said he has had the VA require a seller to replace peeling paint on the trim of a house before the house could be sold to a VA borrower.

But in Inland Southern California's hotly competitive market for bargain homes, banks have no need to fix up foreclosed houses to sell them, real estate agents say.

Because of foreclosure moratoriums, the number of bank-owned homes available has been shrinking at the same time buyer interest has exploded. As a result, many properties draw multiple bids.

Pete Nyiri, owner of Corona-based Top Producers Realty, a high-volume broker of bank-owned Inland homes, said banks give first preference to all-cash buyers, including investors who will take houses "as is," quickly renovate them and resell them at a profit or rent them out. Next, he said, banks prefer those with conventional loans who also are not restricted as to the condition of the properties they buy.

Nyiri said Federal Housing Administration buyers, like their VA counterparts, must purchase houses that meet health and safety standards. But he said the FHA has a rehabilitation program that allows its buyers to borrow the money they need to upgrade properties before they move in.

VA borrowers limited

The VA does not have such a rehab financing program, which Nyiri said unfairly limits the number of houses that VA borrowers have a realistic chance to buy.

Kim Kershaw, a Keller-Williams agent in Corona, said recently a bank for which she markets foreclosed properties accepted a $315,000 all-cash offer on a house in Fontana although she had received VA and FHA offers of $365,000.

"It just blows me away," she said of the bank's willingness to give up a larger sales price for an all-cash transaction.

banks prefer cash

Banks like cash sales, Kershaw said, because they are fast, not requiring a lender's approval. She estimated it would take two weeks for the investment group buying the Fontana house to close escrow, while a VA purchase would take 45 to 60 days to complete.

Glenn Baker, a 49-year-old captain in the Air Force reserves who recently was transferred to California from Massachusetts, said when his offer to buy a house in Moreno Valley was beaten by an all-cash offer that was $17,000 less, he called the listing agent to find out why.

"I said I want to know what was wrong," Baker recalled. He said he was told the agent had not filled out the paperwork properly for a VA loan and that the VA takes longer to close.

Baker said ultimately he was able to buy another Moreno Valley house from an investor for about $200,000, using a VA mortgage.

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David Bauman / The Press-Enterprise

Jonathan HoSee and his family, including from left, Jarren, 7, Evan, 15, and Jana, 12, have outgrown their home in Winchester, but moving up is proving to be a problem.

two purchases halted

HoSee faces a less certain homebuying future. He and his wife have been stopped twice in recent weeks from buying a house because a VA-approved appraiser said the property was not worth what they offered to pay or what the seller demanded.

A five-bedroom house in Murrieta for which they offered $345,000 fell out of escrow Friday after a VA appraisal came in at $290,000.

That came after a VA appraisal was too low to allow HoSee and his wife to buy a house in Winchester for which they offered $357,000, he said. Two weeks later, the house sold for $55,000 over the VA appraisal to a buyer with conventional financing, he said.

Some real estate professionals accuse VA appraisers of being too conservative, while others applaud them for exercising prudence that was lost in appraising during the real estate bubble.

Teresa Pecson, HoSee's real estate agent, said that in today's hotly competitive market, her clients must submit offers above list price to try to beat out others, including those offering all cash, for a house.

Roxanna Stone, the agent representing the family who wanted to sell the Murrieta house to HoSee, said they would have lowered the price but not to the $290,000 VA appraisal, which she called "ridiculous." She said an FHA appraisal of the same house came in at $338,000.

Bruce Norris, a Riverside investor who buys and resells foreclosed houses, said he no longer will consider VA offers because in three cases he was unable to complete sales to veterans when VA appraisals came in almost 20 percent too low.

"It is a pointless exercise," he said.

Others like Bothwell, the Prudential California real estate agent, report that they have had no problem with VA appraisals, but he pointed to a different problem he relates to the Veterans Affairs loans.

Closing costs an issue

Offers are being turned down because the VA requires sellers to pay a large amount of closing costs.

Dean Eckes, acting valuation officer for the Phoenix regional office of the Department of Veterans Affairs, said the VA has a panel of approved appraisers who are selected for jobs on a rotational basis and use appraising guidelines that are standard for the industry.

Some Inland real estate agents complain that the VA will bring in appraisers from outside the area who are not familiar with trends here.

The VA reports that its mortgages are regaining popularity lost during the housing boom when other kinds of loans, such as interest-only and adjustable-rate, instead were widely used by veterans.

No down payment

With tightening of lending practices, the VA loan has become more attractive because it is the only mortgage left that does not require a down payment.

HoSee, who is retiring from military service on Friday, vowed to continue his quest to use a VA loan to buy a larger house for his wife and three children, two of whom now share a bedroom.

His plan is to rent out the family's existing house. He can't sell it for a profit to put a down payment on another, he said, because the declining real estate market left him without any equity. That is why he needs 100 percent financing available only through the VA.

HoSee last week sent an e-mail to the Department of Veterans Affairs to complain that although he has been qualified for every loan, he has not been able to buy a house because of "unfair appraisals."

"I refuse to give up," he wrote, "and I resent the fact that this process is not executing its most important role, taking care of veterans."

Reach Leslie Berkman at lberkman@PE.com or 951-368-9423.