Recently, an AAFMAA Member was hoping to buy a home in one of America’s “hot” housing markets with VA financing. After missing out on several other homes, the Member’s real estate agent suggested switching from VA financing to a conventional loan to make offers more competitive with local sellers.
Some sellers and real estate agents are wary of VA Home Loans, thinking they will take longer to close and could be more risky due to the appraisal requirements involved. But that’s not necessarily the case.
Perceived Drawbacks to VA Loan Appraisals
In April 2021, a survey from the National Association of Realtors® found 94% of real estate agents said sellers are most likely to accept an offer with conventional financing over a government-backed loan (such as a VA Home Loan or FHA loan).
Why? VA Home Loans take about 49 days to close, longer than the average for conventional loans (47 days). “Some lenders need to submit loan files directly to the VA for review and approval, which can add additional time to clearing the file to close,” explains Stacey Daniels, Executive Vice President and Chief Operating Officer for AAFMAA Mortgage Services (AMS). AMS is approved for non-supervised underwriting, she says.
“VA borrowers also can have a lower credit score than those who qualify for conventional loans and can put as little as zero down,” adds Andrew Hicks, Senior Operations Manager for AMS.
So when evaluating multiple offers, sellers would be likely to prioritize cash offers, followed by those adhering to Fannie Mae/Freddie Mac guidelines (conventional loans), which often have a substantial down payment, and, finally, offers from potential buyers using VA or FHA financing. “In the mind of the seller, buyers using cash and or conventional loans are going to close faster, and they’ll get their money out of the home faster,” notes Hicks. However, AMS provides quicker turn-around times on VA Home Loans because we focus on serving the military community, said Hicks.
2023 Changes to VA Appraisal Guidelines
The recent signing of the Improving Access to the VA Home Loan Benefit Act of 2022 by President Biden may alleviate some of those concerns, particularly around appraisals. The Act was passed by the Senate by unanimous consent in December 2022, after being approved by the House.
The Act, in part, requires the VA to update its rules on home appraisals so they are easier to schedule and complete. Specifically, the VA is being encouraged to accept hybrid appraisals, employ emerging technologies, and revisit policies on property inspection waivers, minimum property requirements and comparable (comp) sales.
“These changes will really speed up our process because now we may have to wait for a qualified appraiser to become available in certain areas and then they need to schedule with homeowners to go inside the property, which can add to the delay in completing the appraisal,” says Daniels. “With an exterior-only appraisal, they would be able to just drive by the property and take pictures without having to work around the owner’s schedule to go inside.”
Under the new law, the VA has 180 days to issue new guidance on appraisals. “We are thinking new guidance could be available by the end of the second quarter this year,” says Hicks.
What Is a VA Appraisal?
An appraisal for any loan 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.
For a VA Home Loan, which may provide military homebuyers with zero down payment options, 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. That’s why the current guidelines are a turn-off to many sellers.
Notifying Members about new Guidelines
When the VA sends out its new appraisal guidance, AMS will notify you through this blog and our e-newsletters. Stay tuned.
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Whether you’re thinking about buying, ready to start home-shopping in earnest, or considering a refinance, 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 affordable mortgages designed to meet your needs.
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