VA appraisals are a critical part of the 70-year-old VA loans benefit program. It’s also one of the most misunderstood.
VA appraisals help ensure veterans purchase homes that are safe, structurally sound and salable. There are two elements: a valuation of the property and an assessment of property conditions.
We’ll take a closer look at each part of this mandatory stage in the VA buying process.
Once you’re under contract on a home, your lender will order an appraisal. The VA utilizes a network of independent appraisers. This professional will look at recent comparable home sales, or comps, to help come up with a fair market value for the property.
Lenders will typically need at least one good comp in order to move forward. Unique homes and properties with a lot of acreage or income-producing attributes can all prove problematic—although much depends on the lender’s requirements.
The appraiser submits the comps, supporting documents and valuation. A lender’s staff appraisal reviewer combs over the appraisal and issues a formal Notice of Value for the property.
Am I Eligible for a VA Loan?
Buyers need the appraisal to come in at or above what they’ve offered to pay. A lender is going to lend whichever is less between the purchase price and the appraised value. If you get under contract for $300,000 and the home is only worth $250,000, you’ll need to renegotiate with the seller, make up the difference in cash or walk away from the deal.
The VA has a formal appeal process for appraisal values. Lenders can help you and your real estate agent navigate the process. Good recent comparable sales that weren’t used by the appraiser will be key.
Minimum Property Requirements
The appraiser will also see how the home matches up with VA’s broad property conditions. This isn’t the same thing as a home inspection, which is more granular (and not mandatory). But a home inspection is always a good idea.
The VA’s Minimum Property Requirements (MPRs) are mostly high-level concerns, like ensuring there’s suitable heating, safe water and a suitable roof. Requirements can vary based on geography and other factors.
Some states will always require a termite inspection, for example, while others won’t unless the appraiser notes a potential problem.
There’s a widespread misconception that sellers have to pay for repairs if problems arise. In fact, VA buyers can foot the bill in order to get a home on the right side of the MPRs.
It’s often more a question of whether that’s a smart financial investment.
This article was written by Chris Birk, director of education at Veterans United Home Loans and author of “The Book on VA Loans: An Essential Guide to Maximizing Your Home Loan Benefits.”