You’ve worked with a lender to confirm your eligibility for a VA loan, found the perfect house, and signed a purchase agreement. Your lender has ordered a VA appraisal from an independent appraiser. Now you’re waiting for the results of the VA home appraisal process. It can be a bit nerve-wracking. After all, a low appraisal has the potential to disrupt the sale. Why does the U.S. Department of Veterans Affairs (VA) insist on appraisals? What is the appraiser looking for? What happens if the appraisal doesn’t match your expectations? Exploring these questions can help you appreciate the value of a VA appraisal.
VA Appraisals vs. Home Inspections
While VA appraisals do provide valuable insight into the soundness and habitability of a property, they are not the same as home inspections. A VA appraiser examines a property to ensure that it fulfills certain basic requirements set by the VA and presents no obvious issues (source). When conducting a home inspection, an inspector looks beyond the obvious, probing more deeply and providing far greater detail about any concerns. It’s also worth noting that the VA home appraisal process is mandatory for anyone who hopes to use a VA loan to buy a home. In contrast, a home inspection is highly recommended, but it is not required.
The VA Home Appraisal Process
Why does the VA require a VA appraisal? This professional evaluation of the property protects both the lender and the homebuyer by ensuring that the property’s value is either equal to or greater than its purchase price and that is habitable (source). To do that, the appraiser performs a valuation that determines the property’s estimated fair market value and verifies that it complies with the VA’s Minimum Property Requirements.
When determining the estimated value of the home, the appraiser weighs many factors, including its square footage, its floor plan, its age, its condition, its location, the amenities included, and any other notable attributes. According to Realtor.com, appraisers also look for comps, or comparable home sales, to help them determine the true market value of the property. Once they’ve completed their valuation, the appraiser submits the valuation, comps, and other supporting documentation. Then, one of the lender’s staff appraisers reviews the appraisal and generates a Notice of Value for the property. Generally, the lender will only lend the lesser of the purchase price or the appraised value, so if the appraisal comes in below the agreed price, the buyer and seller will have to weigh their respective options.
The VA’s Minimum Property Requirements
Completing the valuation comprises only half of the appraiser’s to-do list. They must also examine the property carefully to determine whether it is in compliance with the VA’s Minimum Property Requirements, or MPRs. Properties that don’t meet these requirements are not eligible for purchase with a VA loan, so this is an important finding. The appraiser is charged with reviewing several features and deciding whether the property is suitable as it is or requires repairs in order to comply with the MPRs. According to Military.com, to comply with the MPRs, the following must be true:
- The home and property must have appropriate, year-round access.
- The property must have proper utilities.
- The mechanical system must be safe, appropriately sized, and in good working order.
- The roof must be in good condition.
- Attics, basements, and crawl spaces must be easy to access, have proper ventilation, and be free of debris and moisture.
- The structure must be free of hazards like lead-based paint, exposed wires, and mold.
- The structure must be sound and void of physical defects like bad construction, poor craftsmanship, peeling paint, broken windows, dampness, leaks, and evidence of continuing settling and termites or other pests.
After the Appraisal
After the VA home appraisal process is finished, the appraiser uploads their findings so that the VA, the lender, and the prospective buyer can review them. As the VA explains, what happens next depends on the appraiser’s findings and the decisions that the buyer and seller make based on those findings:
- If the appraisal confirms that the property’s value will provide sufficient collateral and complies with the MPRs, the sale can proceed as planned.
- If the appraised value is too low, the buyer can (1) request a Reconsideration of Value and provide additional comps that were not used by the VA appraiser to build a case for the higher value, (2) renegotiate the purchase price with the seller, (3) bring cash to closing to make up the difference in appraised value and sale price, or (4) walk away from the deal.
- If the property needs certain repairs to meet the MPRs, the buyer can (1) ask the seller to complete them, (2) pay to complete them before the sale, or (3) walk away from the deal.
Would you like to learn more about buying a home with a VA loan or the VA home appraisal process? Our team of loan experts is ready to help.
Contact PrimeLending: Manhattan, Kansas today to arrange a consultation. Every year, we help thousands of veterans and active-duty members of the military buy or refinance their homes through the VA home loan program. We offer 100% financing with competitive interest rates – no down payment or PMI required! To learn more, please give us a call at 785-560-3011 or contact us online. We would be happy to help you explore the types of VA loans available. It’s our turn to serve you!