A big part of the VA home loan process is the VA home appraisal. You may have heard myths about the VA appraisal and that it’s impossible to pass or that sellers don’t like VA loans because of the appraisal issues.
There are just that – a myth. VA home loan appraisals aren’t much different than an appraisal on any other loan. It’s a way to tell how much a home is worth and to ensure it’s a good investment.
The VA appraisal does have a few ‘extra’ requirements, but it’s nothing crazy that would stop sellers from accepting your offer.
Here’s how a VA home appraisal works.
Ordering the Appraisal
As soon as you sign a sales contract, the underwriter will order the appraisal on the property. The appraiser schedules the appointment with the seller. The appraiser needs full access to the interior and exterior of the house.
Most appraisers get the job done in a week, but it depends on the availability of the seller to schedule the appointment.
Performing the Appraisal
The appraiser will come into the home to take measurements of the rooms, look at the home’s condition, and take note of its features. The appraiser will take pictures of the interior and exterior of the home. The appraiser uses this information to come up with the fair market value of the home.
Finding Comparable Sales
A big part of the appraisal process is finding comparable sales for the home. The appraiser will find homes that sold within the last 6 months and that are within a small distance from the subject home.
The appraiser will look at the price the homes sold for as well as their condition and features. He/she will make adjustments to the market value of the subject home based on the information he/she finds on the comparable sales.
Minimum Property Requirements
One area that is different about the VA home appraisal is the Minimum Property Requirements. This is where a lot of people get hung up, thinking it’s a ‘bad thing.’
The MPRs are the VA’s way of making sure the home is safe, sound, and secure. They don’t want to lend money on a home that may be a money pit for a veteran, making it difficult to afford his/her mortgage.
The Minimum Property Requirements focus on key areas of the home. Here are some samples of what the appraiser looks for in a property.
- No water damage throughout the house
- Year-round access to the home from the street
- All mechanical systems are in good, working condition
- There’s no sign of pest damage
- There’s no sign of mold or mildew growth
- The heating system works well and heats every room in the home
- There’s enough sleeping and living room for your family’s size
- The roof is in good condition and has life left on it
- There is no lead-based paint
- There isn’t any asbestos
What Happens if the Appraised Value is Low?
The appraised value should match the home’s sales price. If it doesn’t and it comes in low, you have a couple of options.
Renegotiate the Sales Price
You can renegotiate the sales price of the home if you still want to buy it. Once you know the appraised value, you can ask the seller to lower the price to match the appraised value. Even if you don’t buy the home, the seller must disclose the appraised value to future buyers, so it’s in his/her best interest to renegotiate the price.
Your real estate agent can help you with this step as it can be intimidating to renegotiate your sales price.
Pay the Difference in Cash
If you want to buy the home still and the seller won’t renegotiate, you can pay the difference in cash. For example, if the appraised value is $200,000 and you agreed to pay $210,000, you can pay the $10,000 difference and still get financing.
Keep in mind, you must be able to verify that you have the $10,000 to pay the difference. We’ll verify the funds by looking at your last 2 months of bank statements to make sure the money belongs to you and wasn’t a loan.
Walk away from the Sale
If you don’t want to renegotiate the sales price and don’t want to pay the difference between the sales price and appraised value, you can walk away from the sale.
In this case, it helps if you have an appraisal or financing contingency in the contract. This gives you a way out of the contract without losing your earnest money.
Who Pays for the Appraisal?
Borrowers typically pay for the VA appraisal, but sometimes sellers will pay for it. You can always ask the seller to cover the cost if it’s not something that fits in your budget.
