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Comparing Appraisal Requirements for VA, FHA, and Conventional Loans

2022-02-23

Whether you use a VA, FHA or conventional loan to buy a home, the lender will complete an appraisal to make sure the home is worth at least what you’ve offered to pay for it.

An appraisal is an unbiased professional opinion of the home's market value, or the amount an independent appraiser thinks a buyer would offer to purchase the home. Lenders arrange for appraisals using a list of qualified people. An independent and certified appraiser will schedule an appointment time at the property to view it inside and out and will produce a report for the lender. Upon request, the report is sent to the borrower and seller as well; however, when you close your mortgage the appraisal report is usually included in your loan documents.

The appraisal is only a visual inspection meant to document costly or major defects observed at the time of the inspection, plus it provides an idea of the property itself and anything nearby that may impact the value of the home. For example, being on a busy street or near an industrial area may impact the saleability and, therefore, the value of the home. It’s important to understand that an appraisal isn’t the same thing as a home inspection, which is a more detailed and granular look at the property to uncover defects and problems — such as a faulty electrical outlet or appliance. AAFMAA Mortgage Services LLC (AMS) highly recommends you have a home inspection as part of your purchase contract. However, many homebuyers are offering to waive a home inspection in order to make their offer more attractive to the seller when the home is in a very competitive market.

Related: Tips for Buying a Home "Sight Unseen"

The appraisal requirements for VA, FHA, and conventional loans vary. Here’s what you should know.

VA Appraisals

For a VA Home Loan, which can require as little as zero down, lenders must document that the property meets its own guidelines and the VA's Minimum Property Requirements (MPRs), which require the home to be safe, sanitary, and structurally sound.

Among other things, a VA-certified appraiser will check for:

  • Usability of mechanical systems
  • Signs of leaks in basements and crawl spaces
  • Sign of termites, dry rot, or fungus growth (although a separate termite inspection may be recommended or required)
  • Roofing problems
  • Lead-based paint (must be remediated if it existed in the past)
  • Observation of attic and crawl space if applicable

Following a VA appraisal, the VA reviews the full appraisal report. If there are MPR issues, borrowers can ask the seller to fix them. If the seller refuses, borrowers may need to walk away from the deal.

Interestingly, the VA made changes that took effect December 1, 2021, to shorten turn-times and increase what appraisers could charge in some markets. The fee increases, which vary by state and county, run from as little as an additional $25 in Minnesota to $400 more in some areas of California.

These changes may help overcome the perception among some sellers that VA appraisals take longer than other types of appraisals and could delay closings, which could give the upperhand to a competitive bid using a different type of financing.

Related: What Is a VA Appraisal (and Who Pays for It?)

FHA Appraisals

Loans backed by the Federal Housing Administration (FHA) are popular with buyers because the minimum down payment may be as low as 3.5% (with a credit score of 580 or higher).

An FHA appraisal is required to document that the property meets the minimum property standards set by the Department of Housing and Urban Development (HUD). These standards ensure that the home is structurally sound, livable and worth at least as much as you plan to borrow.

An FHA-certified appraiser will look at the interior, exterior, and surrounding land to determine the home’s value and take photos to document any issues they observe.

The cost for an FHA appraisal varies by size and location of the home but is typically several hundred dollars. If your home appraises for less than the sale price, then FHA will not insure it.

If your FHA appraiser says repairs are required, you have options:

  • Ask the seller to make the required repairs.
  • Choose an FHA 203(k) loan to finance both the repairs and purchase. (Note: AMS does not currently offer the FHA 203(k) loan, but we do offer other FHA loans. Contact us for more details.)
  • Use a conventional mortgage, which requires a less-detailed appraisal.

Conventional Loan Appraisals

For conventional loans, you’ll need to put down at least 3% and have a credit score of 620 or higher, but some lenders may have different requirements. You’ll also need an appraisal. Conventional appraisers base their valuation of a home's worth on its location, condition, and at least three “comps” or “comparables,” which are recently sold homes of similar size and type in the area. They'll also look for safety or health concerns that would diminish the home’s desirability and value.

The information needed to complete the appraisal includes the legal description, sales price, square footage and price per square foot, age, condition, total rooms, date of appraised value and the appraised value amount, among hundreds of other identifying aspects of the property. The appraiser has the opportunity to comment or rate every aspect of the home, the property and even the utilities. If the"subject to" box on the appraisal form is checked, it means the property would be appraised at the market value "subject to" certain repairs or improvements.

If the market value determined by the appraiser is the same or more than the selling price, the deal can move forward. If the market value comes in for less, the seller will have to reduce the sales price or the buyer will need to make a larger down payment.

The average single-family home appraisal for a conventional loan runs about $350, according to Home Advisor. However, the cost may be higher in more competitive housing markets with higher demands for home appraisals.

We’re Here to Help

Whether you’re just thinking about buying, ready to start home-shopping in earnest, or thinking about refinancing, an AMS Military Mortgage Advisor will be happy to provide you with an honest and fair comparison of your mortgage options, including a wide range of low-rate and low-cost mortgages designed to meet your needs.

Ensuring our Members obtain the best mortgage possible is our mission. Get your free mortgage assessment today or give us a call at 844-218-6926!