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Comparing Appraisal Requirements for VA, FHA, and Conventional Loans

2024-03-13

Navigating home loans and property appraisals can be tricky, especially for military homebuyers. That said, property appraisals are important in determining the value of the home and influencing various other homebuying factors ranging from interest rates to eligibility criteria. The process can seem overwhelming but we’ll help you understand the intricacies of appraisal criteria, whether you’re buying your first home or choosing a place to retire.

For servicemembers, there are three main loan options to consider: VA, FHA, and conventional loans. The following information will help you decide between the three.

What Is a Home Appraisal?

Between submitting your offer and finalizing the purchase, an appraiser will evaluate the home to back up the sales price you will pay for the home. If you are getting a mortgage, the appraisal will ensure the soundness of your lender’s investment in your purchase.

This part of the home loan process is a visual inspection meant to document the condition of the property, location, and any costly or major defects observed. It provides an overview of the property and of anything nearby that may impact its value. The examination focuses solely on visible issues and doesn’t delve into specifics.

VA Appraisal Process

The VA appraisal process helps determine a property's fair market value. The VA randomly selects the appraiser to maintain impartiality and ensure an unbiased property assessment.

If the appraiser anticipates the appraised value on a VA appraisal will be lower than the sale price, they can request additional information, such as comparable sales data, to reassess the property's value under provisions of the Tidewater Initiative — a benefit only available to VA borrowers. This process could lead to a formal Reconsideration of Value (ROV) if the appraisal comes in lower than expected.

VA Minimum Property Requirements (MPRs)

Minimum Property Requirements (MPRs) ensure that the purchased property is suitable for safe and secure living. The specifications vary, but they are always focused on the residential aspect of the property.

To meet VA MPRs, the property must typically be a single-family dwelling unit – but it can include a dwelling with two to four units to ensure that it accommodates residential living and appeals to a broad range of potential buyers.

Properties cannot exceed four units, and if they do, there are specific requirements for shared spaces such as communal laundry facilities. This limitation ensures that the property maintains a residential character and doesn't transition into a larger-scale commercial or multi-unit property.

The property must also have at least 75% residential space. This includes dedicated areas for living, sleeping, cooking, and dining. There should also be at least one bathroom, ensuring the space covers all basic living needs. Finally, there must be adequate, year-round access to the property by foot or car from a public or private street.

Market Value Assessment

The real estate market is determined by several factors that shape the perceived worth of a property.

There are two fundamental elements in assessing market value:

  • Subjective factors are influenced by location, property condition, and overall appeal. The neighborhood's desirability, proximity to amenities, and the property's aesthetic and functional qualities all contribute to subjective evaluations.
  • Valuation approaches provide a quantitative analysis of the home’s value. The Sales Comparison Approach involves assessing a property's value based on recent sales of comparable properties in the vicinity. The Cost Approach considers the replacement cost of the property minus depreciation. An alternative option called the Income Approach evaluates income potential for income-generating properties.

Comparing Appraisals: VA vs. Conventional vs. FHA

When comparing appraisals, there are three main things to consider: cost, timeline, and appraisal disputes.

Cost

One of the key distinctions between types of appraisals is the cost structure. Both VA and FHA loans impose caps on appraisal charges, although the specific limits can vary based on the property's location. This built-in limitation gives borrowers the ability to plan for associated costs.

Conventional loan appraisals lack this cap, resulting in a less predictable cost scenario. The expense of a conventional loan appraisal is subject to fluctuations influenced by market rates and the specific policies of the chosen appraisal companies.

While the capped fees for VA and FHA appraisals don't automatically make them better options, they do offer borrowers a more predictable financial landscape compared to conventional loans, which can be especially advantageous for individuals on a budget or those seeking a clearer understanding of the costs associated with their loan application.

Timeline

The timeline for your appraisal process can also vary by type. VA appraisals are known for their efficiency since the Department of Veterans Affairs strives to provide a quick and streamlined process for Veterans. Typically, VA appraisals are completed within a week or two.

The FHA (Federal Housing Administration) outlines specific guidelines and inspection requirements for their appraisals. The process can take from several days to a week.

Conventional loan appraisals have a slightly longer timeline, and vary based on factors such as property complexity, location, and the workload of the chosen appraiser. On average, conventional loan appraisals may take around two to four weeks.

Disputing Appraisals

As you make your way through the home-buying process, you may need to dispute an appraisal. Each type of loan has its own procedure and timelines for addressing perceived discrepancies in the appraised value of the property.

Disputing a VA appraisal involves initiating a Reconsideration of Value (ROV). This formal process allows borrowers or their agents to challenge a low VA appraisal. The VA's commitment to supporting Veterans helps streamline the ROV process. However, the timeline for a resolution can vary. It generally takes a few weeks, as the appraiser must review additional information provided by the borrower, such as recent comparable sales.

For FHA loans, disputing an appraisal also involves providing additional information or evidence supporting a different property value. The FHA appraisal dispute timeline itself may span a few days to a week. However, the resolution timeline can be extended further, depending on the appraiser's workload and the complexity of the dispute.

Similarly, disputing a conventional appraisal involves providing additional information to the appraiser to reconsider the property's value. The appraiser's workload and responsiveness influence the timeline for a resolution. It may take several weeks to resolve, impacting the overall loan approval process.

Choosing the Best Appraisal

Selecting the best loan and associated appraisal will depend on individual eligibility criteria and financial considerations. Essential factors to consider include credit score, income, military service history, and the amount available for a down payment. For instance, VA Home Loans may be more lenient, accepting lower credit scores but may require an upfront funding fee, while conventional loans often require higher scores for favorable terms and larger down payments to avoid mortgage insurance.

AAFMAA Member Benefits

AAFMAA helps servicemembers and their families build lasting financial stability. One of the benefits of an AAFMAA Membership is access to resources and experts to help you find the right mortgage for your needs.

Military Mortgage Advisors at AAFMAA Mortgage Services LLC (AMS), a wholly-owned subsidiary of AAFMAA, are ready to help you compare and understand your options. Get your free mortgage assessment today.


This article was originally published February 23, 2022

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