VA appraisals are required when you take out a VA Home Loan. But what are they? How do they work, and who pays for it?
A VA appraisal is an unbiased professional opinion of the home's market value, or the amount the independent VA appraiser thinks a buyer would offer to purchase the home. This value is influenced by recent sales of similar properties and by current market trends.
The lender hires the appraiser, but generally the buyer pays for the appraisal. VA appraisal costs vary by region. In the Northwest, fees might run $800 or more, while in the Midwest and the South, the cost might be closer to $450.
It’s important to understand that the VA 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 — like a faulty roof or air conditioning unit — that could cost the buyer substantial expense to repair in the near future.
Lenders will insist on a VA appraisal to make sure the home is worth at least what you’ve offered to pay for it. “Lenders want to make sure the homebuyer or homeowner is not over-borrowing for a property because the home will serve as collateral for the loan,” explains Anthony “TJ” Powell, Executive Vice President for AAFMAA Mortgage Services LLC (AMS) and a real estate appraiser working in the Raleigh-Durham area since 2005.
Lenders also need to document that the property meets both VA and its own guidelines, he says. VA guidelines ensure the home being financed is considered safe to occupy, structurally sound and free of health hazards. In other words, the home meets the VA's Minimum Property Requirements or MPRs.
If you use your VA Home Loan benefit, you’ll want to have a good understanding of the VA’s MPRs. “By knowing some of the red flags and working with a VA-experienced real estate agent, military families can target homes that are likely to clear the VA appraisal,” says Powell.
How It Works
To document the home’s soundness and safety, the VA appraiser will look at the property’s interior and exterior and assess its overall condition.
Remember, this isn’t a home inspection, and the VA doesn’t guarantee the home is free of defects, just that it meets the MRPs. For instance, the inspector is looking for health/safety hazards like asbestos and radon, defective construction, or the presence of lead-based paint. They are also going to note the presence of termites, fungus growth or dry rot — conditions that must be treated and re-checked before VA loan approval.
Among other things, the VA appraiser will check:
- Access. The property needs to have safe access from the street — private driveway or permanent easement. “If your home is on a shared or private roadway you may have to show proof of a legal agreement regarding its use and maintenance,” says Powell.
- Mechanical systems. Electrical and plumbing systems must be safe and have some usable life remaining. “An entire home with old knob-and-tube wiring could pose some challenges,” says Powell.
- Heat. The home’s heating system must be safe and able to keep a home’s temperature above 50 degrees Fahrenheit. Homes with wood-burning stoves as a primary heating source must also have a conventional heating system that can maintain an adequate temperature to meet the MRPs.
- Water. There needs to be a safe water supply, a water heater and a safe method of sewage disposal. Connection to a public water supply isn’t required unless mandated by local codes or health authorities. Private wells and water supplies will need to meet local or federal water quality standards.
- Roofing. The roof must provide “reasonable future utility,” so no missing shingles or gaping holes.
- Basements and crawl spaces Basements and crawl spaces must be dry, clear of debris and properly vented. “A leaking basement can be a deal breaker for many VA buyers,” says Powell. “These types of leaks can be common in older homes and expensive to correct.”
What Happens Next
The VA requires every appraisal report to be reviewed by either a VA staff appraiser or the lender’s Staff Appraisal Reviewer (SAR) to make sure the estimated value makes sense and that the property meets VA and lender guidelines.
The SAR is generally expected to issue the Notice of Value (NOV) within five business days. The NOV will list the estimated market value and any issues that need to be addressed or verified before the loan can close, such as any repairs needed to satisfy VA or lender requirements.
Sometimes You Have to Walk Away
An appraisal that comes in too low is problematic because a VA loan amount can’t exceed the appraised value (plus allowable costs and fees). If this happens, you can ask the seller to lower the price; seek a Reconsideration of Value (your lender and real estate agent will need to provide additional recent comparable home sales that weren’t used in the original appraisal for reconsideration); make up the difference in cash, or walk away from the deal.
If the NOV indicates repairs need to be made, you can ask the seller to make them or consider making them yourself, but be wary of that course of action. “The VA appraisal might reveal some really serious concerns and you should always be prepared to walk away. The foundation may be collapsing. The plumbing may be in shambles,” says Powell. “An older home with major issues like that could cost a fortune to repair.”
That makes the VA appraisal process one of the most important parts of your home buying journey, he says. “You should talk with your loan officer if you have any questions about what to expect,” says Powell. “The VA appraisal process protects the lender, but it also works to protect you.”
We’re Here to Help
If you’re not certain about whether or not it’s the right time to purchase a home, please contact us online today or give us a call at 844-218-6926. 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!
For more information about how AAFMAA continues supporting the military community during the COVID-19 crisis, visit www.aafmaa.com/COVID19.