What does a property need in the way of a VA appraisal before it can be successfully considered? What if that dream home doesn't pass the inspection?
VA appraisals establish the fair market value of the home, which is a key part of loan approval. But this process is also focused on helping veterans purchase homes that are safe, sound and sanitary.
The initial VA appraisal is an expense which must be paid by the borrower. That expense would also include any required follow-up appraisals known as “compliance inspections” that may be required as a condition of loan approval. These inspections usually happen because the initial appraisal included repairs or modifications to the property to bring it into compliance with VA minimum property requirements.
VA Minimum Property Requirements (MPRs) have some basic guidelines and some more specific rules where certain areas such as lead paint, the location of a home within a high voltage transmission easement, or water connection issues are concerned. Appraisers follow these guidelines and will report any required repairs based off the requirements. Fortunately these repairs do not disqualify a property for VA loan approval and often force borrowers to truly consider a home’s value.
So who initiates the appraisal? As Chapter 10 of the VA Lender’s Handbook points out, “the VA prefers that the appraisal be requested by the lender, although it can be requested by any other party to the transaction, provided the appraiser is assigned by VA. Lenders must ensure that agents and mortgage brokers requesting VA appraisals on their behalf are familiar with the requirements in this chapter.”
Once the appraisal request is granted, a VA-licensed appraiser will inspect the property inside and out. Appraisers are required to review the property and suggest an appraised value, even if it doesn't conform to the sale price of the home. The VA has a strict "no accommodation" clause that forbids non-standard practices that "accommodate" the sale price of the property. Appraisers are also expected to do specific tasks personally.
VA-assigned appraisers must include a location map in the report, building perimeter sketches and photographs of either the sale property or the lot where proposed construction is to take place.
For concerned house hunters, one of the most important parts of the appraisal report is an itemized list of items or issues the Department of Veterans Affairs describes as "any observed repairs required to be completed." The report must also include any corrections to the property to make it conform to VA regulations. Buyers can ask sellers to pay for needed repairs or possibly bear the cost themselves. Talk with a lender for more information.
The appraisal process isn't intended to unreasonably raise the bar when it comes to quality in a new or existing house; instead it's designed to protect both the VA loan borrower and the government's investment in your dream home. Furthermore, the VA appraisal process is not intended as a complete, top-to-bottom home inspection and just because a property has passed a VA appraisal does not guarantee that the home is free from defects.
For a more complete look at a home’s condition, the buyer is strongly encouraged to pay for an optional home inspection. This inspection is not required as a condition of VA loan approval, but no borrower should commit to the purchase of a home without paying to have it inspected.