The VA Loan Appraisal process is an essential step for s or active-duty service members who are considering a VA loan to finance their home.
The appraisal process is designed to determine the fair market value of the property, which is a critical factor in determining the loan amount and ensuring that the property is worth the investment.
Whether you’re a first-time homebuyer or a seasoned homeowner, understanding the VA Loan Appraisal process is crucial for a successful home purchase. In this blog, we’ll provide an in-depth guide to the Home Loans VA Appraisal process, including what it is, how it works, and what you can expect throughout the process.
What is a VA Appraisal?
A VA appraisal is a process that determines the fair market (FMV) value of a property to ensure that it meets the minimum property requirements (MPRs) set by the Department of Veterans Affairs (VA). The VA appraisal is required for any property that is being purchased with a VA loan, and it is conducted by a licensed VA appraiser who is approved by the VA. The purpose of the appraisal is to protect both the Veteran and the VA by ensuring that the property is worth the investment and that it meets the minimum standards for health and safety. The VA appraiser will inspect the property, compare it to similar properties in the area, and provide an appraisal report that includes an opinion of value, a description of the property, and any necessary repairs or improvements that must be made to meet the MPRs.
Role of VA loan appraisal in the home buying process
The VA loan appraisal plays a critical role in the home buying process for those using a VA loan to finance their home. The appraisal is required to determine the FMV of the establishment, which is essential in determining the loan amount and ensuring that the property is worth the investment. It also plays a role in protecting both the Veteran and the lender by ensuring that the property meets the Veteran administration’s minimum property requirements for health and safety. If the property fails to meet the MPRs, the appraiser will note any necessary repairs or improvements that must be made before the loan can be approved. This helps to ensure that the Veteran is purchasing a safe and sound home and that the lender’s investment is protected. In short, this is a vital step in the home buying process and is designed to protect the interests of both the Veteran and the lenders.
What are the differences between the VA and other types of appraisals
There are several key differences between VA loan appraisals and other types of appraisals.
The appraisals are conducted by a licensed and approved VA appraiser. These appraisers are familiar with the VA’s minimum property requirements (MPRs) and have specialized knowledge of the process.
VA appraisals have stricter guidelines for property condition and safety than other types of appraisals. The VA’s MPRs require that the property be safe, sound, and sanitary, and any deficiencies must be repaired before the loan can be approved.
VA appraisals typically require more documentation than other types of appraisals. The VA appraiser must provide a detailed appraisal report that includes a description of the property, an opinion of value, and any necessary repairs or improvements that must be made to meet the MPRs.
VA appraisals have a unique requirement known as the “Tidewater Initiative.” This initiative requires the appraiser to notify the lender and the borrower within 48 hours if the appraised value is likely to be lower than the purchase price. This gives the borrower an opportunity to provide additional information that may impact the value of the property.
The VA loan appraisal process has stricter guidelines and more documentation requirements than other types of appraisals, and it is conducted by specialized VA appraisers who are familiar with the VA’s requirements.
Why are VA Appraisals Required for VA mortgage?
Most new mortgages and refinances require an appraisal to determine the FMV of the property and help determine the loan amount. Similarly, VA loans also require an appraisal, but the process is unique to VA loans. The VA appraiser assesses the value of the property, based on comparable sales in the area, and ensures that the property meets the VA’s Minimum Property Requirements (MPRs). The MPRs ensure that Veterans and active duty servicemembers purchase comfortable homes with enough space and up-to-date safety features. If the property does not meet the MPRs or the purchase price exceeds its fair market value, changes must be made. These changes can include negotiating a lower purchase price or making necessary repairs to the property.
What are the risks associated with not having an VA appraisal
Not having a VA’s appraisal poses significant risks for both the borrower and the lender. The VA appraisal process helps to ensure that the property is worth the loan amount and that it meets the VA’s Minimum Property Requirements (MPRs), which are designed to protect the borrower and lender from potential risks.
If a VA appraisal is not conducted, the borrower could end up overpaying for the property, which could lead to difficulty in making mortgage payments, and potentially even foreclosure. Additionally, the property may have hidden defects or issues that are not identified without an appraisal, which could result in expensive repairs and maintenance in the future. Just a reminder this is not a home inspection but it is one way that clearly affected structural issues or safety issues can be addressed.
For the lender, not having a VA appraisal could result in lending too much money for the property, which could lead to the borrower being underwater on their mortgage. This increases the risk of default and foreclosure, which could result in a significant financial loss for the lender.
Furthermore, without a VA appraisal, the lender may not be aware of any potential environmental hazards or other issues that could affect the property’s value. This could result in the property being worth less than the loan amount, which could again lead to financial losses for both the borrower and lender. Not having a VA appraisal is a significant risk for both the borrower and the lender, and it is crucial to ensure that a proper appraisal is conducted before proceeding with a VA loan.
Minimum property requirements (MPRs) set by the Department of Veteran Affairs
Minimum Property Requirements (MPRs) are a set of guidelines established by the Department of Veterans Affairs (VA) that specify the minimum standards a property must meet to be eligible for a VA loan. MPRs are designed to ensure that the property is safe, structurally sound, and sanitary, and that it provides adequate living conditions for the borrower.
Some of the key MPRs established by the VA include requirements for a safe water supply and sanitation system, adequate heating and cooling systems, and safe electrical and plumbing systems. The property must also be free of any hazardous materials, such as lead paint or asbestos, and any defects or damages that could affect the safety or livability of the property must be repaired before the loan can be approved.
Additionally, the VA requires that the property meet certain square footage and bedroom/bathroom requirements, depending on the size of the property and the number of occupants. The property must also have adequate access to roads, and it must be located in a safe, stable, and economically viable neighborhood.
Overall, MPRs are an essential part of the VA loan appraisal process, as they help to ensure that the property being purchased with a VA loan is safe, livable, and meets the VA’s standards for quality and safety. By meeting these requirements, borrowers can be confident that they are investing in a safe and secure property, while lenders can be assured that they are making a sound investment.
The VA Loan Appraisal Process
After the appraiser inspects the property, they will submit a detailed report to the lender. The report includes the property’s appraised value, any deficiencies or repairs needed to meet the VA’s MPRs, and any environmental hazards or safety concerns.
The lender will then review the appraisal report to determine if the property meets the VA’s MPRs and if it is worth the loan amount. If there are any deficiencies or repairs needed, the borrower, by way of their realtor and the seller’s realtor may need to address them before the loan can be approved.
In some cases, an exterior-only appraisal or a desktop appraisal may be acceptable for certain VA-guaranteed purchase transactions. However, these appraisal types are only acceptable if the lender is approved to participate in the Lender Appraisal Processing Program (LAPP), the purchase price does not exceed the current calendar year conforming loan limit for the property jurisdiction, the dwelling is a single family (1-unit) home that is not a manufactured home or condominium, not located on a leasehold estate, and not undergoing renovation.
1. Ordering the VA Appraisal
To order a VA appraisal, you must have a contract on a home. Your lender will order the appraisal, and the VA will assign a licensed appraiser to inspect the property. VA-assigned appraisers are neutral third parties, and they are responsible for determining the property’s value and condition.
Who orders the appraisal and the reasons behind it
When it comes to a VA loan appraisal, the lender is responsible for ordering the appraisal. However, the borrower will usually initiate the process by applying for the loan and providing information about the property to the lender. Once the lender has all the necessary information, they will order the appraisal from a VA-approved appraiser.
There are several reasons why an appraisal is necessary for a VA loan. The primary reason is to determine the fair market value of the property. The appraiser will inspect the property and review recent sales of similar properties in the area to determine the value. This is important because the VA will only guarantee a portion of the loan amount based on the appraised value of the property.
Another reason for the VA loan appraisal is to ensure that the property meets the VA’s Minimum Property Requirements (MPRs). The MPRs are a set of standards that the property must meet in order to be eligible for a VA loan. These standards cover things like the condition of the property, the safety of the property, and the presence of any environmental hazards.
The VA loan appraisal also helps protect the borrower by ensuring that they are not overpaying for the property. If the appraised value is lower than the sale price, the borrower may need to renegotiate the purchase price or come up with additional funds to cover the difference.
Paperwork required to order the appraisal
When ordering a VA appraisal, certain paperwork is required to be completed by both the lender and the borrower. The following documents are typically required:
- Completed Uniform Residential Loan Application (Form 1003): This form is completed by the borrower and provides information about their income, employment, assets, and liabilities. The lender uses this information to determine the borrower’s eligibility for a VA loan
- Borrower’s Authorization and Certification Form: This form is completed by the borrower and gives the lender permission to order a VA appraisal. It also certifies that the borrower intends to occupy the property as their primary residence.
- Certificate of Eligibility (COE): This document is issued by the VA and confirms the borrower’s eligibility for a VA loan. It is obtained by the lender on behalf of the borrower.
- Purchase Agreement: This document is a contract between the buyer and seller that outlines the terms of the sale, including the purchase price and any contingencies. It is used by the appraiser to determine the fair market value of the property.
Once the lender has received these documents, they can order the VA appraisal. The appraiser will conduct a thorough inspection. After the appraisal is completed, the appraiser will submit a detailed report to the lender that includes the property’s value, any deficiencies or repairs needed to meet VA’s Minimum Property Requirements (MPRs), and any environmental hazards or safety concerns. The lender will review the appraisal report to determine if the property meets the VA’s MPRs and if it is worth the loan amount. If there are any deficiencies or repairs needed, the borrower may need to address them before the loan can be approved.
2. The VA Appraisal Inspection
Once the VA appraisal is ordered, a VA-approved appraiser will inspect the property inside and out to determine its fair market value and ensure that it meets the VA’s Minimum Property Requirements (MPRs). The VA appraiser is an impartial third-party and is assigned by the VA rather than the lender or borrower.
During the appraisal inspection, the appraiser will examine the property’s condition, size, location, and any other factors that may impact its value. They will also take note of any required repairs or safety hazards that need to be addressed before the loan can be approved.
It’s important to note that for certain VA-guaranteed purchase transactions, an exterior-only appraisal or a desktop appraisal may be acceptable. This is typically the case when the property is a single-family home.
Once the appraisal inspection is complete, the appraiser will submit a detailed appraisal report to the lender. This report will include the appraised value of the property, any deficiencies or repairs needed to meet the VA’s MPRs, and any environmental hazards or safety concerns. The lender will then review the appraisal report to determine if the property meets the VA’s MPRs and if it is worth the loan amount. If there are any deficiencies or repairs needed, the borrower may need to address them before the loan can be approved.
The VA appraisal inspection is a crucial step in the VA loan process. It helps ensure that the property meets the VA’s MPRs and is worth the loan amount. As a Veteran, it’s important to understand the appraisal process and its requirements to avoid any delays or complications in obtaining your VA loan.
What happens during the appraisal inspection
During the VA appraisal inspection, the VA-approved appraiser will conduct a thorough examination. The appraiser will inspect the property to determine its fair market value and ensure that it meets the VA’s Minimum Property Requirements (MPRs).
The appraiser will typically examine both the interior and exterior of the property, taking detailed notes and photographs. They will assess the condition of the property’s structure, roofing, plumbing, electrical systems, heating and cooling systems, and any other relevant features.
The appraiser will also review recent sales of similar properties in the area to determine the property’s value. This information will be used to complete a detailed appraisal report that will include the appraised value of the property, any deficiencies or repairs needed to meet the MPRs, and any environmental hazards or safety concerns.
How long the appraisal inspection takes
The entire appraisal process, from ordering the appraisal to receiving the final appraisal report, typically takes around 10 business days. However, the length of the appraisal inspection itself can vary depending on the size and complexity of the property.
For a standard single-family home, the appraisal inspection usually takes about 30 minutes to an hour to complete. However, larger or more complex properties may take longer to inspect.
After the inspection, the appraiser will need to take some time to analyze the data they collected and prepare their final appraisal report. This process typically takes a few days. Once the report is complete, it will be submitted to the lender for review.
The entire appraisal process can take up to two weeks or more, depending on the circumstances. If any issues arise during the inspection or the appraisal report needs to be revised, this could further extend the timeline.
What the appraiser is looking for during the inspection
During the VA appraisal inspection, the appraiser will look for a variety of things to determine the value of the property and ensure it meets the VA’s Minimum Property Requirements (MPRs). Here are some of the key areas the appraiser will focus on:
- – The condition of the property: The appraiser will assess the overall condition of the property, including the roof, foundation, walls, and other key structural components. They will also check for any visible signs of damage, such as cracks or water stains.
- – The size of the property: The appraiser will measure the square footage of the property to determine its size and ensure it meets local zoning and building codes.
- – The number of bedrooms and bathrooms: The appraiser will verify the number of bedrooms and bathrooms in the property to ensure it meets local standards and can accommodate the needs of the borrower.
- – The amenities and features of the property: The appraiser will take note of any special features or amenities, such as a swimming pool, fireplace, or updated kitchen, which can increase the value of the property.
- – The location of the property: The appraiser will consider the location of the property, including its proximity to schools, shopping, and other key amenities, as well as the overall safety and desirability of the neighborhood.
- – Compliance with MPRs: The appraiser will also check to ensure the property meets the VA’s MPRs, which include requirements for things like heating and cooling systems, electrical and plumbing systems, and water supply and sanitation.
By considering all of these factors, the appraiser will determine the fair market value of the property and ensure that it meets the VA’s standards for safety and livability.
3. The Appraisal Report
After completing the appraisal inspection, the VA-approved appraiser will compile a detailed report on their findings. This report is sent to the lender, who then shares it with the borrower. It is important to note that the buyer is paying for the appraisal and that the appraisal is the buyer’s product. At no time should the appraisal be shared with the seller without the buyer’s consent. Now this may not seem important to some but remember if you get an appraisal that says your house is 100K undervalued as a seller you may not be as easy to work with up until closing when it comes to negotiating repairs and other monetary amounts. Nowhere does it say that the buyer has to share the information and it should be kept close hold by your representing realtor.
The appraisal report typically includes a description of the property and its surroundings, including the neighborhood, nearby amenities, and any notable features of the property. The appraiser also lists any defects or issues with the property that affect its value, such as damage, needed repairs, or code violations.
One of the most critical pieces of information included in the appraisal report is the appraised value of the property. This value is based on the appraiser’s analysis of the property and recent sales of comparable homes in the area. The appraiser also ensures that the property meets the VA’s Minimum Property Requirements (MPRs) and evaluates any potential environmental hazards or safety concerns.
If the appraisal report shows that the property meets the VA’s MPRs and is valued at or above the purchase price, the lender will likely approve the VA loan. However, if the appraisal report indicates that the property needs repairs or does not meet the VA’s MPRs, the borrower may need to address these issues before the loan can be approved. When a report comes back with items that need to be addressed the buyer can go back into a negotiation phase with the seller and the entire team (buyer and seller) should try to find resolution. If resolution cannot be found then the contract in most cases can be terminated without penalty to either party.
What is included in the appraisal report
The VA appraisal report includes a detailed analysis of the property’s value, condition, and compliance with the VA’s Minimum Property Requirements (MPRs). The report is prepared by the VA-approved appraiser and submitted to the lender for review.
Here are some specific details included in the report:
Property Information: The report includes the property’s physical address, legal description, and lot size.
Property Characteristics: The report will note the number of bedrooms and bathrooms, the type of construction, and the property’s overall condition.
Property Value: The appraiser determines the property’s value based on a variety of factors, including recent comparable sales in the area, the property’s location, and the property’s condition.
Minimum Property Requirements: The appraiser will check to make sure the property meets the VA’s Minimum Property Requirements (MPRs), which include items such as structural integrity, safety, and sanitation.
Repairs or Deficiencies: If any repairs or deficiencies are found, the appraiser will note them in the report, along with an estimated cost to fix them.
Photos: The report will include photos of the property’s interior and exterior to provide a visual record of the appraiser’s inspection.
The appraisal report is a critical document in the VA loan process as it helps the lender determine if the property is suitable for a VA loan and if the loan amount is appropriate for the property’s value.
How long it takes to receive the appraisal report
The timeline for receiving the VA appraisal report can vary depending on several factors, such as the workload of the appraiser and the complexity of the property.
However, in general, it typically takes about 7-10 business days for the lender to receive the appraisal report after the appraiser completes the inspection.
In some cases, it may take longer if there are any issues or discrepancies that need to be addressed. The borrower can request a copy of the appraisal report from their lender once it is received.
How long is VA appraisal valid
A VA appraisal is typically valid for six months from the date of the appraisal. However, if there have been changes to the property or the market since the appraisal was completed, a new appraisal may be required. Additionally, if the loan is not closed within the six-month validity period, the appraisal may need to be updated or a new appraisal ordered. It’s important to work with your lender to ensure that your VA appraisal is valid and up-to-date throughout the loan process.
Who pays for VA appraisal
The cost of the VA appraisal is typically paid for by the borrower as part of the closing costs. However, the lender may allow the borrower to include the appraisal fee in the overall loan amount, which means that it would be paid off over the course of the loan. Additionally, the seller may choose to pay for the appraisal as part of their contribution to the closing costs, but this must be agreed upon by all parties involved in the transaction.
What to do if the appraisal comes in lower than expected
If the VA appraisal comes in lower than expected, it can create some challenges in the home buying process. Here are some steps you can take if this happens:
- Review the appraisal report: Look at the appraisal report in detail to ensure that there were no errors made by the appraiser. Check to see if all the facts about the property are accurate, such as the square footage, number of bedrooms and bathrooms, and any upgrades or renovations.
- Renegotiate the purchase price: If the appraisal is lower than the purchase price, you can ask the seller to lower the price to match the appraisal value. This is where having a real estate agent can be beneficial in negotiating on your behalf.
- Pay the difference: If you are still committed to purchasing the home, you can choose to pay the difference between the appraised value and the purchase price out of pocket. However, keep in mind that if you are obtaining a VA loan, the lender will only finance up to the appraised value.
It’s important to remember that the VA appraisal is a critical step in the home buying process to ensure that you are not overpaying for the property. While it can be frustrating to deal with a lower-than-expected appraisal, it’s important to take a step back, review your options, and make an informed decision.
What information appraiser uses to determine property value
An appraiser uses several sources of information to determine the value of a property. These include:
- Property inspection: The appraiser inspects the property, both inside and outside, to assess its condition and note any features that may affect its value.
- Market analysis: The appraiser examines recent sales of comparable properties in the area to determine the current market value of the property.
- Public records: The appraiser reviews public records such as tax assessments, zoning records, and building permits to verify information about the property.
- Multiple Listing Service (MLS): The appraiser may access the MLS to gather information on recent property sales and listings in the area.
- Interviews: The appraiser may also interview real estate agents, buyers, sellers, and other parties with knowledge of the property to gather additional information.
Using all of this information, the appraiser applies their professional judgment and expertise to determine the fair market value of the property.
What will fail a VA home loan appraisal
A VA home loan appraisal may fail for various reasons, such as:
- Structural issues: The VA appraiser will check for any significant structural issues in the property, such as foundation problems or roof damage, that could affect the safety and habitability of the home.
- Health and safety concerns: The appraiser will look for any potential health and safety hazards, such as mold, asbestos, or lead-based paint. Any issues that could potentially harm the occupants of the property will be flagged.
- Property damage: Any significant damage to the property, such as water damage or termite infestations, will be noted in the appraisal report.
- Code violations: The VA appraiser will ensure that the property meets all local building codes, zoning laws, and safety regulations.
- Value below purchase price: If the appraiser determines that the value of the property is less than the purchase price, the loan may be denied or the terms of the loan may need to be renegotiated.
It is important to note that the VA appraisal is not a home inspection and should not be relied on as a substitute for one. Homebuyers are encouraged to hire a professional home inspector to conduct a thorough inspection of the property before closing on the home.
Is appraisal required for VA refinancing loans
For an IRRRL, better known as an Interest Rate Reduction Refinance Loan an appraisal is not required when doing the VA refinancing.
The purpose of the appraisal is to determine the value of the property to ensure that the loan amount requested is not more than the property’s worth. Therefore other than the IRRRL one will be needed for cash out or to restructure the loan into a different product. The appraisal also helps to identify any issues with the property that could affect its value or the loan’s eligibility.
ADPI Pro Tips
- Don’t rush the appraisal process when you are the buyer. Sometimes as soon as the contract is signed and in place there will be pressure to start the appraisal process. In today’s market the negotiation process for getting items addressed during the inspection period is very important and if that is not completed or there is resistance ordering the appraisal too soon can cost the buyer, remember this is typically the cost of the buyer so if the deal is not going to work due to other factors don’t rush into the appraisal process!
- To ensure a smooth and successful appraisal process, it is important to work with a reputable lender and provide all necessary paperwork in a timely manner. During the appraisal inspection, it is best to allow the appraiser to work uninterrupted and provide access to all areas of the property.
This blog was written in collaboration with our absolutely amazing DoD SkillBridge employee: Bethany
