If you’re purchasing a home with a VA loan, you’ll need an appraisal from a VA-certified appraiser. Find out more about why an appraisal is necessary, what you can expect, and how much it will cost.
Why is a VA home appraisal necessary?
An appraisal from a VA-certified appraiser is required for a VA purchase loan for two reasons. It’s used to establish the home’s fair market value and determine if it meets the VA’s Minimum Property Requirements.
- Fair market value – This is the amount a buyer might pay for a house without factoring in supply and demand conditions that could otherwise influence the asking price.
- Minimum Property Requirements – The VA home appraisal process includes an evaluation of the property to ensure the home is safe, structurally sound, and sanitary.
VA appraisal to determine fair market value
The VA appraiser will look for at least three comparable homes (called "comps") that are similar in square footage, age, and condition that have sold in the area of the home you’re buying. The selling price of these homes will be used to calculate the fair market value.
If the house you are purchasing is 1,500 square feet and the selling price is $180,000, that’s a value of $120 per square foot ($180,000 ÷ 1,500 = $120). The appraiser’s report might include three comps ranging from $118 to $122 per square foot, which shows a comparable selling price to the amount you’re paying for your new home.
The fair market value plays a crucial role in a lender’s evaluation of your loan. They want to make sure that the home you’re buying is worth the purchase price because if you default on your loan, the lender can attempt to sell the home at its approximate market value to recoup their loss.
What happens if the fair market value is lower than the sale price? You have a few options to work around this issue.
- Ask for a reconsideration. VA home buyers can seek a Reconsideration of Value in which you and your real estate agent can provide comps not included in the appraiser’s report to help substantiate the purchase price. You can also review the appraiser’s report to check for any errors in calculating values and provide this evidence to your lender.
- Ask the seller to lower their price. You can use the appraiser’s valuation to justify asking for a lower sale price. The seller may be willing to negotiate to avoid missing out on a willing buyer.
- Back out of the deal. The VA Amendment to Contract protects VA buyers if the home appraises for less than the sales price. You’ll be able to walk away from the deal and get your earnest money deposit back.
Meeting the VA Minimum Property Requirements
The second part of the VA appraisal process is determining whether a home meets the VA’s Minimum Property Requirements. The VA appraiser will assess the interior and exterior of the home and make note of issues that will need to be repaired before the loan can close.
The appraiser’s evaluation is not a home inspection, however. A home inspection is a much more detailed look at a property and while it’s not required for a home purchase, it’s highly recommended.
The VA Minimum Property Requirements are extensive and detailed, but here is an overview.
- Safe property access. There must be safe access to the home from the street or a private driveway.
- Adequate living area. The home must have enough space for living, sleeping, cooking, and sanitary facilities.
- Safe mechanical systems. The plumbing and electrical systems should be functioning properly and safe to use.
- Safe water supply. There must be a continuous supply of safe water for drinking, bathing, and sanitary uses, access to hot water, and sewage disposal.
- Heat supply. There must be a permanently installed heat source capable of maintaining a temperature of at least 50 degrees Fahrenheit in areas with plumbing.
- Roofing is in good condition. The VA defines this as providing "reasonable future utility, durability, and economy of maintenance." It should be free of any holes or missing shingles.
- Clear, accessible crawl space or basement. The basement or crawl space should be easy to access and be clear of debris and moisture.
- No health or safety hazards. The home must be free of issues like radon and asbestos. These problems will need to be resolved before your loan will be approved.
- No lead-based paint. For homes built prior to 1978, lead-based paint is presumed to be present. Any cracked or loose paint must be remediated.
- No defective conditions. Examples include poor construction or workmanship, settlement/structural issues, rot and decay, and leakage.
VA loan termite inspection
The VA appraiser will examine the home for evidence of termites. Any active or previous infestation will require a separate termite inspection and damage must be repaired before your VA loan will be approved. For some states, an inspection is required even if there is no trace of termites.
The cost of an inspection ranges from $50 to $150. The VA stipulates that you as the buyer are not allowed to pay for the inspection, with the exception of these nine states: Alabama, Arkansas, Arizona, California, Florida, Louisiana, Mississippi, Oklahoma, and Texas.
VA home appraisals for townhomes, condominiums, and manufactured homes
The VA’s conditions for condominiums are similar to single family detached homes, but with one major difference. These properties require VA approval of the entire complex before they’re eligible for a VA purchase loan. However, townhomes and planned unit developments do not need to be VA approved, even if they are part of a complex with units that are similar to condos.
Freedom Mortgage can help you with a VA home loan purchase for a manufactured home that is:
- Installed or occupied on another site/location
- Located in a condo community
- Subject to leasehold
VA appraisal fees and turn times
The appraisal fee is included in your closing costs. According to the VA appraisal guidelines, you can expect to pay anywhere from $400 to $1,200 and you’ll typically receive it within 10 days. The cost and timeline to complete the appraisal may vary based on the property’s location.
Choose Freedom Mortgage for your VA loan
Freedom Mortgage is the #1 VA lender1 in the United States. We’re ready to answer your questions about VA loan purchases or streamline refinancing of your current VA loan! To speak with a Loan Advisor, call us at 877-220-5533 or Get Started online.
1. Inside Mortgage Finance, January to September 2020