What You Need To Know About VA Loan Appraisal and Inspection Requirements

VA Loan Appraisal And Inspection Requirements:

VA loans are specifically tailored to assist eligible veterans, active-duty military members, and their surviving spouses in purchasing a home. In the process of securing a VA loan, you will encounter two key assessments: the “VA home inspection” and the “VA appraisal.” Although they might appear similar at first glance, there are critical distinctions between them.

A VA appraisal is a mandatory step that shares certain characteristics with traditional appraisals. On the other hand, VA home inspections provide a more comprehensive evaluation, offering greater protection for the buyer.

This discussion will delve into the differences between VA inspections and appraisals, examine the appraisal criteria required for a VA loan, and discuss how these evaluations can influence your decision to move forward with a property purchase.

Is a Home Inspection Necessary for a VA Loan? 

A home inspection is not a compulsory requirement for obtaining a VA loan, making it an optional procedure strongly encouraged by many VA loan providers. This aspect of VA loans is consistent with the policies of Federal Housing Administration (FHA), conventional, and most other mortgage types.

However, VA loans distinguish themselves by mandating a home appraisal to ascertain the property’s market value for the purpose of lending. The appraisal also verifies that the property complies with the VA’s Minimum Property Requirements (MPRs).

The MPRs aim to safeguard veterans from investing in properties that are not structurally sound. Since VA home appraisals evaluate the compliance of properties with these standards, it can sometimes lead to confusion between appraisals and inspections.

VA Appraisal Versus Home Inspection 

The objective of a VA appraisal is to determine the fair market value of a property. This valuation assists lenders in setting a loan amount and ensures that the property holds sufficient collateral in case of loan default.

Furthermore, the VA appraisal serves additional purposes.

The appraiser is tasked with ensuring that the property is safe, secure, and hygienic for the buyer, meaning the property should be habitable immediately without posing any physical or financial risks to the veteran. The appraiser checks that the property adheres to the VA’s minimum property standards and is in a condition that does not necessitate extensive repairs. The findings are then documented in an appraisal report.

Nonetheless, it’s important to recognize the limitations of a VA appraisal; it is not a substitute for a thorough home inspection. While an appraisal may cover superficial aspects of a property, an inspector conducts a detailed examination of every aspect of the house, identifying current or potential future issues.

VA Appraisals vs. Conventional Appraisals 

There’s a widespread belief that VA appraisals are more stringent or unfavorable compared to conventional appraisals. However, this isn’t necessarily true. Both types of appraisals share many similarities and, for the most part, are quite comparable. Let’s explore the similarities and differences between appraisals for VA and conventional loans.

Similarities The main objective of both VA and conventional loan appraisals is to determine the property’s fair market value. During the appraisal, the appraiser visits the property, measures its dimensions, evaluates its condition, and takes photographs.

In both cases, the appraiser compares the property in question to three similar properties that have sold within the last six months and are located in the vicinity. This comparison helps establish the property’s fair market value.

Appraisers examining homes for either type of loan also look out for major defects or significant upgrades that could affect the home’s value. For instance, a significant roof damage would negatively impact the appraisal value, whereas an expanded kitchen equipped with new appliances would enhance the property’s value.

The appraisal is always conducted by a third party, selected by the lender, but the cost is covered by the buyer.

Differences The key distinction between VA and conventional appraisals lies in the VA’s Minimum Property Requirements (MPRs). While the idea of MPRs might seem intimidating to buyers concerned about how appraisal standards might affect their loan approval, it’s rare for these requirements to lead to outright loan denials.

Not meeting the MPRs can actually be beneficial for the buyer in some cases. MPRs help protect buyers from investing in overpriced homes or properties that would necessitate significant structural repairs or renovations.

Sellers might initially feel anxious about fulfilling the MPRs. However, if the property has been well-maintained, it’s likely that the appraiser will give it a passing grade. Should any issues arise during the appraisal, sellers have the opportunity to address these concerns, ensuring the property meets the VA’s standards.

The U.S. Department of Veterans Affairs sets forth Minimum Property Requirements (MPRs) to ensure that homes financed with VA loans are safe, structurally sound, and sanitary. These requirements serve to protect veterans by guaranteeing that the properties they purchase meet a basic standard of living and are free from significant defects.

Here is a summary of ten critical appraisal requirements for VA loans and insights into each:

1. Living Space Requirements Properties must offer adequate space for the inhabitant’s needs, including sufficient areas for living, sleeping, cooking, dining, and sanitation. The size of the home itself isn’t as crucial as its ability to comfortably accommodate the family, in alignment with VA guidelines and local building regulations.
2. Access and Boundary Integrity Properties should have reliable, year-round access from public streets. If access is via private roads, there must be a permanent easement in place, often maintained by a homeowners association. Additionally, the property should not infringe upon adjacent properties, ensuring that all structures, including garages and utility easements, are within its boundaries.
3. Environmental and Safety Hazards Homes must be located away from environmental hazards such as flood zones, sinkholes, or areas of contamination (like radon gas, asbestos, or lead-based paint). The VA considers any risk that could compromise the residents’ health or the home’s structural integrity as unacceptable.
4. Water and Sanitation There must be a consistent supply of safe, potable water for drinking, bathing, and other sanitary purposes, alongside reliable hot water access. The property also needs to have an effective sewage disposal system in place, ensuring health and hygiene standards are met.
5. Utilities and Home Systems Essential utilities, including electricity, gas, and a functioning HVAC system, are necessary. All systems should be in good working order, ensuring the home can be adequately heated during colder months and cooled during warmer periods.
6. Structural Integrity The structure of the home, including its roof, foundation, crawl spaces, basements, and attics, should be well-maintained and free from pests, mold, or other damaging elements. The roof must effectively prevent moisture ingress without needing immediate repair, and accessible, hazard-free attic and basement areas must have appropriate ventilation.
7. Pest Inspection and Structural Deterioration The appraiser is required to identify any damage from termites or other wood-destroying insects, as well as signs of dry rot or other conditions that compromise the home’s stability. Any findings that threaten the home’s durability or occupants’ safety must be reported.
8. Drainage Proper drainage away from the home’s foundation is essential to prevent water pooling on the property. Any notable drainage issues identified by the appraiser must be documented.
9. Swimming Pools While swimming pools are permissible under VA financing, they must be functional and safe. Any defects or safety concerns related to the pool must be reported by the appraiser, but if the pool and its equipment are in good condition, it typically meets the VA’s MPR.
10. Nearness to Airports For properties situated close to an airport, the VA appraiser is tasked with determining if noise from the airport or other related factors could impact the home’s safety, comfort, and market value.

Veterans interested in purchasing a home, whether it’s a new build or pre-existing, located in what is known as a Clear Zone—defined as being within a certain proximity to an airport runway—must be made aware of the possible implications of their purchase. This usually involves the veteran signing documents, provided by the appraiser, acknowledging the home’s closeness to airport operations.

It’s important to note that properties slated for new construction within Clear Zones do not meet the Minimum Property Requirements and, therefore, do not qualify for financing through VA loans.

These guidelines ensure that homes purchased with VA loans provide a safe and healthy environment for veterans and their families, reflecting the VA’s commitment to supporting those who have served.

Navigating Issues with the VA Appraisal

Occasionally, VA home appraisals may not proceed as expected, potentially causing delays in the loan process or even resulting in the loss of loan approval. Here are steps to take if you encounter such issues.

When the Home Doesn’t Satisfy Minimum Property Requirements (MPRs) 

If the property fails to meet the VA’s MPRs, you have several courses of action. You might request that the seller address the deficiencies, enabling you to proceed with your financing and complete the loan closure. Alternatively, you might opt to withdraw from the purchase due to the property not being safe, sound, and sanitary as mandated by the VA.

Another option is to seek an MPR waiver, a formal request by the veteran buyer to overlook a specific MPR. This waiver must receive approval from both the VA and your mortgage lender, ensuring that the exemption does not compromise the home’s safety or sanitation.

Dealing with a Low Appraised Value 

In instances where the appraised value falls below the agreed-upon sale price, you’re faced with a few choices. Since the VA does not allow loans to exceed the home’s market value (to avoid paying more than its worth), consider these options:

• Negotiate a Lower Sales Price: Some sellers are willing to reduce their price to match the appraised value, maintaining the viability of the sale. If the seller agrees, you can move forward with purchasing the home.
• Cover the Appraisal Gap: If the seller refuses to lower the price and you still wish to buy the property, you have the option to pay the difference between the appraised value and the sale price out of pocket. This amount is in addition to any down payment, though VA loans typically do not require one. Be mindful that this approach means starting with zero equity in the property.
• Withdraw from the Purchase: You also have the right to terminate the sale if financing above the appraised value is unattainable. Assuming your contract includes appraisal or financing contingencies, you should be able to recover your earnest money without overpaying for the property.

VA Loan Appraisal and Inspection Requirement FAQs

Do you have more questions about the VA loan appraisal and inspection process? Here are some common inquiries:

What inspections are required for a VA loan? 

While VA loans mandate a home appraisal, a home inspection is not compulsory. The appraisal assesses whether the property is safe, sound, and sanitary for VA financing, but it’s less comprehensive than an inspection.

When is a home inspection necessary for VA loans? 

A home inspection is never obligatory for a VA loan, but it’s strongly advised. An inspector will thoroughly examine the property, providing detailed insights into its condition and potential upcoming maintenance needs.

When should I schedule a home inspection for a VA loan? 

It’s wise to arrange for a home inspection immediately after entering into a sales contract to make an informed decision early in the buying process.

Is the VA appraisal fee paid upfront? 

Yes, expect to pay $600 or more for the VA appraisal fee upfront.

How long does the VA appraisal process take? 

Typically, the appraisal process takes about 10 days, but it’s prudent to allow extra time when planning your closing date due to potential delays.

Final Thoughts 

While there are no formal inspection mandates for VA loans, obtaining a comprehensive home inspection is strongly advised. Despite the thoroughness of a VA appraisal and its adherence to minimum property requirements, it doesn’t provide the depth of analysis that a full inspection does. Ensuring a property is thoroughly appraised and/or inspected is crucial, regardless of the loan type, as it empowers you to make an informed offer and successfully acquire your future residence.

Initiating the preapproval process early during your home search can clarify your budget and streamline your hunt for the perfect home. Begin your application now and secure your preapproval with Elevation Mortgage to expedite your journey to homeownership.