Congratulations! You’ve found a home you’d like to purchase, and your loan is being processed. The next step in your homebuying journey is the VA appraisal.
A VA appraisal is necessary to ensure that the property is reasonably priced and meets certain standards. In fact, all homes financed with a VA loan are required to undergo a VA appraisal before the lender will agree to loan the funds.
VA Appraisal vs. Home Inspection
Before getting into the details of a VA appraisal, it’s important to understand the distinction between an appraisal and a home inspection. While they may seem similar, they serve different purposes in the homebuying process.
A VA appraisal sets the fair market value (FMV) of the home and ensures that the property meets the VA’s minimum property requirements (MPRs). The FMV sets a benchmark that helps the lender decide the amount of loan it is safe to offer, while the MPRs make sure the house meets specific safety and living standards.
On the other hand, a home inspection is a more detailed, in-depth analysis of the home’s condition, indentifying potential current or future problems. Home inspections are not required for homes financed with a VA loan, but we highly recommend getting one.
VA Appraisal Requirements: What Appraisers Look For
VA appraisers follow the VA MPRs when conducting an appraisal. These requirements are set by the VA and aim to ensure the home is safe, structurally sound and sanitary for the homeowner.
Primary MPR concerns a VA appraiser will look for include:
- Residential property: The property must be intended for residential use and not for commercial purposes. The home must also be your primary residence.
- Adequate living space: The property must have sufficient living space to accommodate the occupants.
- Safe electricity and plumbing: The electrical and plumbing systems must be safe and functional.
- Sufficient heating: The property should have an adequate heating system to maintain a comfortable living environment.
- Water retrieval and disposal: The property should have a safe and reliable water supply and a proper sewage disposal system.
- Good roofing: The roof must be in good condition and free from significant damage.
- Dry and undamaged basements: If the property has a basement, it should be dry and free from any structural damage.
- Property access and encroachments: The property should have legal access and no encroachments on neighboring properties.
- Health and safety hazards: The property should not have any health or safety hazards that could endanger the occupants.
- Faulty construction: The construction of the property should be quality and free from significant defects.
- No pests: The property should be free from infestations of pests like termites or rodents.
VA Appraisal Fees
VA appraisal fees are upfront and can vary between $500-$800 or more, depending on your location. However, it’s possible to negotiate for the seller to cover these costs during closing negotiations.
VA appraisal fees are dependent on a couple of factors but are not limited to:
- How much living space the home has
- If there are hazards or pests that can damage the home
- Whether the home’s structure is considered sound
The VA Appraisal Process Explained
Once the appraisal process begins, the VA appraiser will assess the property, create a report on its value and condition, and submit it to the VA’s portal within approximately ten days. Note that lenders do not have control over the VA appraiser; the appraiser works independently to maintain objectivity.
The final decision on the property’s appraisal value is made either by a VA staff appraisal or a lender’s Staff Appraisal Reviewer (SAR). This decision is documented in a Notice of Value (NOV), which is typically completed within five days.
The NOV may also list issues that need to be addressed before the loan can close. These could include additional inspections for pests or damage, required repairs, proof that utilities meet requirements or a copy of a private road agreement.
Common VA Appraisal Roadblocks
There are instances where the VA appraisal may present some challenges. If the VA appraisal value comes in lower than the seller’s asking price or if expensive repairs are necessary to meet the MPRs, you may need to make some tough decisions.
- If the appraisal comes in low: Borrowers have multiple options to challenge a low appraisal, such as a VA Tidewater or Reconsideration of Value.
- If repairs are needed to meet MPRs: Borrowers can ask the seller to make repairs, do the repairs themselves or walk away from the purchase entirely.
Understanding how a VA appraisal works is essential for applicants to plan their budget effectively and avoid unexpected costs. While the process may seem complex, it plays a crucial role in helping veterans protect their investment when achieving their dream of homeownership.