In situations where a VA borrower purchases a home, moves in, and discovers a construction defect, what options does the buyer have? In the case of a new construction home, the VA borrower has a year to file a complaint.

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Bruce Reichstein is an Expert on (VA) Military/Veteran Home Loan Guidelines for over 26 years — www.VALoans.com. He is an experienced VA Loan Mortgage Banker who is passionate about assisting US Military Veterans utilize their Veteran Eligibility to purchase a home.

VA Loans and Property Defects on Existing Construction

In situations where a VA borrower purchases a home, moves in, and discovers a construction defect, what options does the buyer have? In the case of a new construction home, the VA borrower has a year to file a complaint with the Department of Veterans Affairs. But what recourse does the buyer of an existing construction home have?

The VA views "new construction" homes differently than "existing construction" properties; VA loans for new construction properties are those issued for homes that have never had an owner before. These purchases are usually covered by a one-year builder's warranty or other agreement that protects the VA mortgage holder. "Existing construction" homes have had at least one previous owner.

Because the home is not purchased as a brand new structure, the buyer acquires the home on different terms than if they had had the house custom built or purchased immediately after construction during the term of a one-year builder's warranty.

If a VA loan applicant closes the deal, moves in, and does have to register a complaint, the VA must consider whether the defect or problem existed before the VA appraisal, and whether that issue would "cause the property to not meet VA minimum property requirements." and "should have been seen by the fee appraiser" according to VA rules.

In cases where the defect or condition should have been detected by the VA-assigned appraiser, the VA may take "administrative action" against that appraiser. Whether or not such action is required, the VA rulebook says the Department of Veterans Affairs creates a record of the complaint, and will also:

"Send Loan Management:

  • The loan file,
  • A copy of all documentation regarding the complaint and VA's investigation of the fee appraiser's performance in the case, and

  • A list of repairs necessary to make the property meet VA Minimum Property Requirements (MPRs). That list will be compiled from the best information available at the time (e.g., letter of complaint).

  • After Loan Management has completed its review, notify the veteran in writing of the results of VA's review of the complaint."
Existing construction purchases are often limited by the terms of the purchase agreement. In a situation where a legitimate problem exists-one that should have been detected by the VA appraiser--the home owner does have a chance at getting VA assistance; the process is a bit more complicated due to the nature of the purchase but it is available under the right circumstances.

Bottom line, the VA borrower should report their concerns to the VA and let the Department of Veterans Affairs make the call rather than assuming that nothing can be done.