A VA appraisal is required by The Department of Veterans Affairs for both purchase and cash-out refinance loans. Before a VA home loan is approved, the VA appraisal must:
- Establish the fair market value of the home
- Ensure the home is safe
Not to worry, the VA appraisal process doesn't require an unreasonable level of quality or craftsmanship as most homes meet minimum property requirements set by the VA.
Establishing a Fair Market Value
Like a traditional home appraisal, the VA appraisal combines recent home sales and market data to determine the fair market value of the home being purchased or refinanced. In layman's terms, the appraiser calculates how much the home is worth based on comparable home sales in the area.
Like in a traditional appraisal, everyone involved in the home sale hopes the appraised price comes in at or above what the buyer offered for the home. It's especially important for borrowers taking advantage of the $0 down benefit offered by the VA loan program.
If the appraisal price comes in under the VA loan amount offered by the lender, buyers may need to cover the difference in cash or ask the seller to lower the purchase price. Buyers may also ask for a reconsideration of value if they feel a mistake was made in the appraisal report.
VA Appraisal Requirements
In addition to assessing the value of a home, VA appraisers inspect the property to confirm it meets the VA's Minimum Property Requirements (MPRs). VA appraisers will check the property for 3 S's:
- Structural integrity
To put it simply, the home must be move-in ready. Any necessary repairs will be reported, and problems must be corrected prior to closing unless an exception is granted.
There isn't a one-size-fits-all checklist, but here are a few examples of home requirements addressed during a VA appraisal:
- Clean drinking water in the home
- Functioning electricity
- Stable foundation
- Sound roof
- No visible termite infestation
For those who've bought a home in the past, this list probably looks similar to that of a home inspection. However, a VA appraisal does not replace a traditional home inspection, and any reputable VA lender will recommend a home inspection in addition to the VA appraisal. The VA appraisal process is not intended as a complete, top-to-bottom home inspection. Just because a property passed a VA appraisal does not guarantee that the home is free from defects.
You can learn more about the differences between a home inspection and a VA appraisal here.
A house is a home, but it's also an investment. VA appraisals and home inspections are simply tools to protect borrowers and lenders and prove that the investment they're making together is a good one.
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Who Pays for the VA Appraisal?
The borrower generally pays for the VA appraisal but may try to recoup appraisal fees through negotiating with the seller.
VA appraisal expenses may include any follow-up appraisals known as "compliance inspections" if 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.
You can learn more about VA appraisal fees here.
Ordering a VA Appraisal
Your lender will order the VA appraisal once you have a contract on a home. Once granted, a VA-licensed appraiser will inspect the property inside and out. VA appraisers are assigned by the VA and are a neutral third party to the transaction.
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.
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.
Can a VA Appraisal Delay my Loan?
It's possible for VA appraisal results to delay closing if the home doesn't meet the VA's minimum property requirements. The appraisal report includes an itemized list of issues the Department of Veterans Affairs describes as "any observed repairs required to be completed." Items on this list must be fixed before you close on your home.
In many cases, these repairs would have been spotted during a traditional home inspection as well and could be an opportunity to negotiate. Buyers can ask sellers to pay for needed repairs if they don't want to bear the cost themselves.
Will the VA help if my property is poorly built or defective?
The VA has many ways to assist those seeking a VA mortgage, but there are also restrictions. When you purchase a home using a VA home loan, the VA does not offer guarantees that your home is free from defects.
While the VA does conduct an appraisal of the property, this should not be misconstrued as a complete inspection of the property. The VA does not order builders to correct problems or defects in the construction of your home. It's the buyer's responsibility to seek expert advice about the condition of a property before purchase.
Additionally, the VA cannot offer legal counsel of any kind. The buyer is responsible for being informed about rights and responsibilities with regard to new property purchases. When in doubt, hire a lawyer or an expert in property evaluation.