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VA Appraisals: How Do They Work?
By Aja McClanahan MONEY RESEARCH COLLECTIVE
The Veterans Administration guarantees loans issued to eligible borrowers who purchase a home. VA loans have many advantages. They don’t require a down payment or mortgage insurance – and they usually charge less interest than conventional loans do.
To ensure that the home to be purchased meets the VA’s underwriting guidelines, the property is subject to an appraisal process that determines its market value. It also serves as a kind of home inspection that ensures that the premises are suitable for habitation and don’t need any major repairs.
Unlike conventional appraisals, VA appraisals are more flexible, especially if the initial appraisal comes in low or requires that repairs be made to the home. Here’s what you should know about VA appraisals and how to navigate the issues that may attend them.
How Do VA appraisals work?
All VA loans require a property appraisal, which is known for its somewhat strict criteria. The appraisal ensures that active duty service members and veterans are using their VA loan benefits to buy a property worthy of the federally-guaranteed loan that’s used to purchase it. VA appraisals help prevent fraud and protect the investments of both the VA loan lender and the borrower.
VA appraisals combine elements of a conventional appraisal and a home inspection. The appraisal is used to determine a home’s market value and to identify the major repairs that must be performed before the loan closing.
The VA appraiser will use various data points to arrive at a conclusion about a home’s market value such as:
- Recent nearby home sales with comparable features
- Recent upgrades and renovations to the property
- Required repairs (which could decrease the value of the home)
One advantage of the VA appraisal process is known as the Tidewater Initiative. If an appraiser thinks that the value of the home is lower than the contracted sale price, Tidewater allows the lender to provide additional information to the appraiser that supports the higher price before the final appraisal report is submitted to the VA. Such additional information may include data about comparable homes (comps) or recent updates to the home. Lenders may also submit information about the community (e.g., recent job growth or development initiatives) that could increase the home’s appraised value).
If the Tidewater process doesn’t resolve the discrepancy between the appraised value and the sale price, the buy can appeal the appraisal through the VA’s Reconsideration of Value (ROV) process.
Another advantage of VA appraisals is that borrowers have recourse when appraisers become unresponsive and delay a loan closing. In the last two to three years, many home sales were delayed due to the high demand for appraisers. As a VA borrower, you can reach out to a local Regional VA Loan Center to see what can be done to get an appraisal done quickly.
Finally, you should know that if your VA appraisal comes back low or requires repairs, you’ve still got a few options to save the sale:
- Cover the appraisal gap out of pocket
- Split the appraisal gap with the seller
- Ask the seller to make repairs
- Get a price reduction
- Make the repairs yourself (this requires a special process that involves putting your repair funds in escrow)
VA appraisals vs. home inspections
The appraisal process includes an evaluation of a home’s systems, appliances and structure, much like a home inspection does. If you want to get a second opinion on a home’s condition, you can pay for a home inspection, but it’s not a requirement for a VA home loan.
VA appraisal requirements
Properties that are purchased with a VA loan must meet the VA’s “Minimum Property Requirements” and establish a market value that justifies the home’s purchase price. Essentially, the property must be:
- Safe and sanitary
- Free of any health hazards
- Free of any illegal additions or structural changes
VA appraisal process
In most cases, your lender will order the appraisal once it receives a signed purchase agreement (contract) for the home. The appraiser will then visit the property to inspect it and take pictures.
Once the inspection is complete, the appraiser will compile a report that includes an assessment of the property’s value. This report, which is called a Notice of Value, is typically delivered in 7 to 10 business days and is used by the lender to determine whether to approve the loan.
The report will also list all needed repairs and their estimated costs. Once repairs have been made, the appraiser will inspect the property again. If the property then meets all of the VA’s requirements, the loan will be approved, and the closing can go forward.
What does a VA appraiser look for?
VA appraisers look for issues that might prevent the property from meeting the Minimum Property Requirements, such as:
- Electrical/plumbing/heating problems
- Missing handrails
- Chipping paint
- Leaky or dilapidated roofs
- Broken windows
- Broken major appliances
- The presence of WDOs (wood-destroying organisms)
- Foundation issues
- Mobile homes not on a permanent foundation
- Code violations
How much does a VA appraisal cost?
The cost of a VA appraisal varies depending on the property’s location and the type of property being appraised. Typically, an appraisal for a single-family home will cost between $300 and $500, though in some areas it can be as high as $650. You can check the VA’s appraiser fee schedule for updated appraisal fees by state and county.
VA appraisals FAQs
Summary of our guide to VA appraisals
The appraisal process is an important part of getting approved for a VA loan. Knowing what the appraiser is looking for and what is required for a home to pass the appraisal can also help you choose a suitable property during your search.
If you’re considering buying a home with a VA loan, it’s important to understand how the appraisal process works and review VA loan tips to increase the likelihood of your loan’s approval. By working with a qualified VA lender and an experienced real estate agent – and following the VA’s guidelines – you can also be confident that you’re getting a good deal on your loan for a suitable home.
Aja McClanahan is a writer that covers personal finance and a number of related topics. Her work and personal story of paying down over $120,000 in debt have been featured in publications around the web including sites like Money, CreditCards.com, Business Insider, Inc., Experian and many others.