Appraisal process for VA home loans | 2021
When you enter a contract to buy a new home, your VA lender will order your VA appraisal.
This VA home appraisal has two goals:
- To define the fair market value of the property you’re buying
- To make sure the property meets the VA’s Minimum Property Requirements (MPRS)
The results of your appraisal will determine the next steps in your VA loan process.See if you’re eligible for a VA home loan. Start here (Oct 26th, 2021)
VA appraisal vs home inspection: What’s the difference?
Homebuyers often confuse their VA appraisal with a traditional home inspection, so we’ll start by pointing out the difference between these two, separate steps in the loan process.
- Home appraisal: The Department of Veterans Affairs requires the VA appraisal as part of its home loan process. A VA-approved appraiser follows the VA’s specific procedures and then files an official appraisal report. The appraiser will check whether the home meets the VA’s Minimum Property Requirements, but it’s not a full home inspection.
- Home inspection: The VA doesn’t require a full home inspection, but it’s a really good idea for borrowers to get one anyway. An inspector will check out all of the home’s appliances and mechanical systems and can uncover both minor and major defects.
Some homebuyers get their own home inspection before moving forward with the VA’s appraisal process. That way, if the inspector finds problems, they can decide whether to proceed with the loan, negotiate for a lower purchase price, or choose another home to buy.
Even if the home inspector’s report doesn’t uncover serious problems, it’s helpful to know about minor defects as you enter homeownership.
Why does the VA require an appraisal?
Appraisals aren’t unique to VA loans. Most new mortgages and refinance loans require an appraisal of some kind. The appraisal tells lenders the fair market value of the property, and this valuation helps determine your loan size.
The U.S. Department of Veterans Affairs, which insures VA loans, requires a specific home appraisal process. The VA’s appraiser will:
- Assess your home value: You can’t borrow more than the value of the property, so the VA loan appraisal will find the home’s current market value. Comparable sales of homes in your area will help set the valuation of the home you’re buying.
- See if the home meets the VA’s standards: The VA wants to make sure veterans and active duty servicemembers buy comfortable homes with enough space and up-to-date safety features. Most modern homes that are in good condition will meet the VA’s Minimum Property Requirements (MPRs).
If the home you want to buy doesn’t meet the VA’s standards — either because its value doesn’t justify the purchase price or because the home itself doesn’t meet Minimum Property Requirements — you’ll need to make some changes.
For example, if the home’s purchase price exceeds its fair market value, you can ask the homeowner to lower the asking price. Or you could make a down payment to make up the difference.
If the appraiser finds a problem with the structure of the home, you can ask the homeowner to make necessary repairs or move on to another home.
What are Minimum Property Requirements?
The VA’s Minimum Property Requirements are intended to make sure the VA guarantees loans only for properties that are livable. To get financing, the home must be structurally sound and hazard-free.
When your loan officer orders an appraisal, the VA-approved appraiser will make sure the home you’re buying has:
- A working HVAC system
- A roof that protects the home’s structure and will do so for the foreseeable future
- Enough room for the number of people who will live in the home
- Connections to public utilities such as water and sewer
- No evident lead-based paint
- No termites, fungus, or dry rot
- Access from a street or road 12 months out of the year
- Properly vented attics and basements / crawl spaces
Most modern homes that have been maintained properly will meet the VA’s property standards, but your appraiser may point out some necessary repairs to bring the home into compliance.
Step-by-step: The VA loan appraisal process
Here’s what to expect from the VA loan appraisal process:
Step 1: Ordering the home appraisal
Entering a home purchase contract allows the VA appraisal process to begin. Your loan officer will order the appraisal through the Department of Veterans Affairs. The VA will dispatch an approved home appraiser.
As the homebuyer, you have little to no control over this process. You can’t request a specific appraiser or even schedule the appraisal. Often, an appraisal will happen within 10 business days, but the wait can be longer in busier areas.
Step 2: Getting the appraisal report
The home appraiser will file an appraisal report with the VA, and your loan officer will receive a copy. You’ll also be billed for the appraisal. Costs vary some by location but expect to pay at least $425. You can find your local VA appraisal fee here.
This appraisal fee will be part of your closing costs, but you could be billed the amount even if you don’t close on the home. Check with your loan officer in advance if you’re concerned about this possibility.
Step 3: Deciding what to do next
Ideally, your home appraisal report will show the home you want meets the VA’s property and valuation requirements for your loan. This means your home has sailed through the process and meets the VA’s eligibility requirements.
But this doesn’t always happen. You may be faced with this tough decision: Should I move on to another home or stick it out with my current home purchase contract?
Common VA appraisal problems
Since the VA home loan appraisal has two components, the problems it can uncover fall into two categories:
- The home doesn’t meet MPRs: In this case, the appraiser finds defects with the home’s structure or primary systems. The VA won’t approve a loan unless it meets the VA’s standards for safety, stability, and size.
- The home’s valuation won’t back the loan: The appraiser compares the home to comparable homes in the area to find its fair market value. The VA won’t insure a loan if its size surpasses the appraised value of the home.
Problems with the property’s valuation can be a sticking point for buyers and sellers. If an appraisal comes in too low for your loan, the appraiser is saying the home isn’t worth what you’ve agreed to pay for it. The seller will probably disagree, but it’s the VA appraiser’s opinion that applies.
You could ask the VA for a reconsideration of value, but there’s no guarantee this will help.
On the other hand, MPR problems that arise in the appraisal process shouldn’t be a surprise to your real estate agent, especially if your agent has experience with the VA loan process.
If you or your agent know a home wouldn’t meet the VA’s Minimum Property Requirements, it’s best not to spend the money on a home appraisal. Just move on to another home. Or see if you can get the seller to make necessary repairs before entering a contract.
What will fail a VA appraisal?
If you’d like to know in advance whether a home is likely to meet the VA’s property standards, look over the items below. This is not a comprehensive list of all possible problems areas, but it’s a good place to start:
- Chipped and or peeling paint. Paint issues, in general, can be flagged by the appraisal. In particular, homes built before 1978 are likely to have lead-based paint somewhere beneath the surface of the walls. If paint is chipped or peeling, expect an appraiser to notice.
- Handrails. Missing or uninstalled handrails could be flagged, particularly on anything over three steps tall.
- Ground Fault Circuit Interrupter (GFCI). These outlets prevent shorting and should be installed near any sinks or water supply, including in kitchens and bathrooms and near sump pumps or HVAC systems.
- Roof and shingle issues. If the shingles are older or look to be in poor shape, the appraiser may require a contractor to submit a letter confirming the roof will be good for another three-plus years.
- Mold and mildew. Any visible moisture problem along with mold and mildew issues will almost always be flagged by an appraiser
- Electrical. Appraisers don’t like to see exposed or bare wires. This also includes open junction boxes. If the electrical or boxes don’t look good, you can also assume that the appraiser will feel the same way
- Deck and exterior staining. Some appraisers will require exposed wood to be either stained or painted
- Appliances. All appliances must be attached to the home. While there may be some exceptions to this rule, consulting with the lender would make sense to ensure that the sale won’t fall through
- Utilities. All utilities to the property must be in working order and turned on
- Heating, ventilation and cool (HVAC). In some areas, you may not be required to have both heating and air conditioning. However, if one is missing there is a good chance the appraiser will flag it. While AC is not always necessary, most areas require a source of heat at the very least
- Windows. The windows should be in operating condition, without cracks. If any windows are cracked, or missing panes, they will be flagged by the appraiser.
This certainly doesn’t cover all items an appraiser will be looking at, but these are common problem areas that you can see on your own and save some time and money. There’s no need to start the VA appraisal process if you already know the home won’t pass.
How to resolve common appraisal problems
So what can you do if the VA won’t move forward on your home loan because of problems with the home appraisal?
What if the appraisal comes back low?
Sometimes the appraisal will come back with a lower home value than the amount of loan. If this happens, you can:
- Pursue reconsideration of value (ROV): If you have reason to think the home appraiser was wrong, ask your loan officer about a reconsideration of value. It could work
- Work with the seller to negotiate a lower sales price: If there’s not a huge gap between your purchase price and the home’s valuation, ask the seller to drop the price. The seller has no obligation to help, but it’s worth asking
- Come up with some money to close the gap: If you have enough cash on hand to make up the difference between the purchase price and your maximum loan amount, you could move forward by making a down payment
- Move on to another home: You may have no choice but to keep shopping for homes
This is frustrating. But try to remember the VA is protecting you from buying an overpriced home while also protecting itself from insuring a loan that’s not backed by sufficient value.
What if the home doesn’t meet MPRs?
If the home doesn’t meet the VA’s Minimum Property Requirements, it may need only minor repairs. For example, if the power outlet for the sump pump isn’t GFCI protected, you’ll be back on track soon enough.
But if the roof is 30 years old and won’t possibly last another year — or if the HVAC system doesn’t work — the home would need costly repairs to meet the VA’s standards.
If this happens, you can:
- Ask the seller to make the repairs: If you’re dealing with a motivated seller, this might work. Often, a seller will agree to lower the sales price to accommodate the cost of repairs. You could even make the repairs after closing on the home, in some cases
- Move on to another home: If the necessary repairs are too extensive and you can’t come to an agreement, you’ll have to choose another home
Most of the time, necessary repairs can be completed without excess cost and time. Rooms can be repainted. Electrical boxes can be upgraded. Handrails can be replaced.
Then you may need a second VA appraisal to confirm the updates have been completed. This follow-up appraisal shouldn’t cost as much as the first.
For more information, review our guide on low VA appraisals here.
The goal of VA appraisals
Home sellers and homebuyers often complain about the VA’s appraisal process, especially when it derails a sale. But keep in mind, an appraiser will be looking to be sure that the property is “safe, sound, and secure.” The goal of the VA loan program is for service members and veterans to be able to move in and enjoy the home — not to get stuck repairing it.
Remember, if the appraiser requests work orders for repairs, he or she will likely have to come back to ensure that those items were actually completed, likely requiring an additional fee.Check today’s VA rates. Start here (Oct 26th, 2021)
Working with a real estate agent can help you clear the VA appraisal
Working with a real estate agent who is well versed in VA home loans, and is willing to help you get through the problems, will be the most helpful to you as a homebuyer.
Most fixer-upper homes won’t meet VA requirements. The VA has more requirements than say, an FHA or conventional loan, but their sole focus is that you are going to be able to fully enjoy the home.
VA appraisals help protect you too
Although the VA appraisal might seem like another step you need to take before you can get a loan, it’s an important part of the mortgage process. The VA relies on the appraiser to make sure that the home is liveable and is a good long-term value for the veteran.
So don’t let it dissuade you from taking advantage of one of the best mortgage products on the market.
VA loan appraisal process FAQs
What is a VA appraisal?
The VA appraisal is different from a traditional home appraisal for a conventional or FHA loan. Like those loans, the VA’s process includes a property valuation. But it also determines whether the home is safe and comfortable.
What are the VA’s Minimum Property Requirements?
The VA’s Minimum Property Requirements, or MPRs, ensure veterans and active duty servicemembers buy safe and comfortable homes. Most homes that are in good condition will meet MPRs. You can read more about them here.
Are VA loan appraisals tougher?
VA loan appraisals can seem tougher than traditional home appraisals because they include an extra step: making sure the property meets Minimum Property Requirements. But if the home you’re buying has been properly maintained, it should pass the appraisal or require only minor changes to gain compliance.
Do VA Loan appraisals come in low?
It’s possible for a VA property valuation, which is part of the VA loan appraisal process, to come in lower than expected. If your Notice of Value comes in too low to support the purchase price of the home, your loan may not be large enough to buy the home. You’d need to ask the seller to lower the price or you’d need to make a down payment to cover the difference.
What will fail a VA appraisal?
If a home fails to meet the VA’s Minimum Property Requirements (MPRs), the home will fail the VA appraisal. MPRs ensure the home is move-in ready so veterans won’t face a long list of expensive repairs after closing on the home.
How long does a VA loan appraisal take?
Expect at least a two-week wait for your VA loan appraisal. Turn times have been longer during the COVID-19 pandemic. The process could take longer if you’re buying a duplex or four-unit complex instead of a single-family home.
What does a VA appraiser look for?
Your VA appraiser will make sure the home meets the VA’s basic requirements which include up-to-date electrical, plumbing, sanitary facilities, and HVAC systems along with a roof that’s in good condition. The appraiser will also look for the presence of hazards such as lead-based paint, radon, mold, and mildew. The home must also have easy access from a public or private road during all four seasons. On top of this assessment, the appraiser will also assess the home’s fair market value.
How long is a VA appraisal good for?
Your VA appraisal report is good for six months. Most homes close within two months, but if your closing gets delayed more than six months your loan officer may need to order a second appraisal.
How long after VA appraisal to close?
If the home you’ve chosen sails through the VA appraisal process, you could close on the home within a month after you get the appraisal report. If the home needs repairs to gain compliance, your closing could be delayed.
Who pays for the VA appraisal?
Homebuyers pay the VA appraisal fee which is part of the closing costs along with the VA Funding Fee and the loan origination fee. If you don’t close on the home because the home failed the VA appraisal, you may still be billed the appraisal fee.
Do VA loans require an appraisal?
All VA loans except the VA IRRRL (streamline) refinance require an appraisal. The IRRRL doesn’t require an appraisal because only VA-financed homes (which have already passed an appraisal) qualify for streamline refinancing. The VA cash-out refinance will require a new home appraisal even if you’re refinancing an existing VA loan.
Do VA refinances require an appraisal?
VA cash-out refinances require an appraisal but VA streamline refinances, also known as VA IRRRL, do not require a new appraisal.
Will the VA loan appraisal affect my interest rate?
The VA loan appraisal will not directly affect the interest rate you’ll get on your VA loan. But it could play a role. For example, if the appraisal’s valuation shows the home is worth $25,000 more than your purchase price, your loan will look less risky to the lender. As a result, you could get a slightly lower rate. But your credit score will have a much bigger impact on your interest rate than the appraisal. It’s best to shop around with at least three VA-authorized lenders to get the best rate.Check today’s VA rates. Start here (Oct 26th, 2021)