VA Loans and the Appraisal Process: What You Need to Know
What You Need to Know About the Appraisal Process for VA Loans
If you are interested in buying a home, the appraisal process is one of the most important parts of the journey toward purchasing a house. This is due to two things.
One is that your loan officer is required to ensure the home meets minimum safety and livability standards. The appraisal process does not pretend to review the entire home for all known problems but it does serve as a benchmark to make sure the home meets minimum standards.
The appraisal is also meant to help the lender establish the fair market value of the property and compare that value to the asking price of the home.
This is done by reviewing the home as-is and comparing it to similar properties in that housing market (known as “comparables”) to determine how much the home is worth. In some cases, if a borrower is buying and remodeling a home at the same time, the home’s valuation may depend on how it measures up once the work is all done and the upgrades are ready to use.
VA Appraisals: The Basics
The VA appraisal process is initiated by the lender and paid for by the borrower. The VA appraisal process does not require the person doing the work to be an expert in things like the home’s electrical system, foundation, or plumbing.
That means that your appraiser will review these systems, but may not be experienced enough to spot every issue that could be a problem with the home.
Your appraiser is not required to step out onto the roof of the home, so if there are issues there you won’t notice them without a home inspection. More on the home inspection issue below. The bottom line? The appraisal process is a tool the lender uses and is not a tool for the borrower. We’ll discuss that in-depth below.
Get a free, no-obligation consultation regarding your VA Loan!
In spite of the fact that the appraisal is not a complete top-to-bottom review of every square inch of the home, certain issues may arise that require correction as a condition of home loan approval.
This means that the appraiser has spotted a condition that is in violation of state or local building code, a violation of VA home loan Minimum Property Requirements or MPRs, or some other problem that means the home is not compliant with minimum standards.
Sometimes there are no corrections possible. The appraiser notes a condition that cannot be corrected or would cost too much to correct. A good example? An appraiser notes that a home has a high-voltage line that cuts across the property.
This is a condition that is unacceptable for more than one government-backed mortgage program including VA loans. The owner is likely to be unable to have this issue corrected, and that is a problem that could stop a loan to purchase the home.
Other issues may be corrected through repairs or upgrades. In such cases the VA appraiser will note the problem recommend the corrective action on the appraisal report, then the borrower and seller of the property must work out the details. In cases like these, a compliance inspection is likely necessary, and that is an expense you will pay as the buyer of the home.
What You Need to Know About VA Appraisals
If you disagree with the results of an appraisal, but your issue is simply that you didn’t agree with the dollar amount valuation of the home, you are not able to request another appraisal just to get another shot at a better value.
If there are what the VA calls “material deficiencies” on the appraisal, it may be contested. But if the only reason to ask for a review of the appraisal is to get another opinion you will be disappointed as this is not permitted.
The appraisal process is between lender and appraiser and you will not have direct communication with the appraiser. That does not mean you won’t get to see a copy of the appraisal report, but don’t expect to be a part of the process. That’s a lot different than the borrower-arranged home inspection, which we’ll discuss later.
Some want to know if a specific feature of a property will “pass” the VA appraisal. More specifically, some borrowers want to know if the home they want to buy is going to “pass” the appraisal because the home is served by a well, or has a septic tank. There are other issues similar to these but those two are fairly common.
VA appraisal rules do not spell out the requirements for septic and wells except to defer to the local authority on those issues. VA appraisal guidelines do not have specific parts-per-million or bacteriological specifications for health risks associated with well water.
But the state or local health authority does and that’s who VA appraisers defer to for such standards. If the well or septic situation is not in compliance with state or local health code, it is not acceptable to the VA.
In general, homes purchased with government-backed mortgages like VA home loans or FHA mortgage loans are required to connect to the local utility providers whenever feasible, but some properties cannot meet this standard and there are provisions in the VA mortgage loan rules for them.
Appraisals Versus Home Inspections
Some borrowers make the mistake of equating a VA appraisal with a home inspection. They assume that because the home “passed’ the appraisal process it must be defect-free. This is NEVER TRUE. The appraisal, as discussed above, is a tool for the lender and not the borrower.
The home inspection is a borrower-arranged, borrower-paid option that goes into much greater detail on the condition of the home. A home inspection is intended to give you the most accurate view of the home’s true condition so you can make an informed decision about whether to buy the property or not. Yes, the home inspection is optional. No, a borrower should never skip it. Some do. And some go on to find major problems with their home after they purchase it, move in, and live there for a few months to a year. Not all problems manifest themselves early in your days of home ownership.
A foundation issue, for example, may take years to show symptoms. Or you may notice trouble right away. It all depends on the age and condition of the home, and sometimes local environmental factors could play a part in the speed of a problem manifesting itself.
And the borrowers who skipped the home inspection and did not learn about the issues present in that home have no resource against the lender, the seller, or the VA if they buy a home without a home inspection and have such issues later.
One government-backed loan program, FHA Single-Family Home Loans, even has a special publication called For Your Protection, Get A Home Inspection that warns about these issues. That is how serious this issue is–even the agencies guaranteeing the loans want you to know to never skip the inspection.
Basically, buying a home without having it inspected is like purchasing a used car without ever taking it for a test drive. It is literally the same thing, and the same consequences can come as the result. It’s true that a home inspection may potentially cost about the same as an appraisal, but those who balk about paying that sum should remember one very important thing.
By spending the money on a home inspection, you are paying hundreds of dollars that could save you from paying thousands of dollars later on. And that’s a tradeoff well worth considering. And if you aren’t sure whether a home inspection is worth the trouble, it’s smart to ask a real estate agent or even a loan officer for some horror stories of those who chose not to have the home inspected and what happened as a result.
Get a free, no-obligation consultation regarding your VA Loan with Veterans First!
- Getting Started With VA Loan Benefits
- VA Loans, Investment Properties, and Deployments
- VA Loan Occupancy Rules: What You Need to Know
- The VA Loan Certificate of Eligibility
- VA Loan Limits
About the author
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.