What to know about VA loan appraisals
Quick insights
- A VA loan appraisal ensures the property meets the VA’s Minimum Property Requirements (MPRs) for safety and functionality as well as value, while also determining its fair market value.
- VA appraisals have strict requirements, such as ensuring the property is free of lead-based paint, has a functional HVAC system and meets specific safety and structural standards.
- The VA oversees the appraisal process and assigns approved appraisers, while the borrower typically covers the cost.
A VA loan is a special type of mortgage for current or past servicemembers. Backed by the U.S. Department of Veterans Affairs (VA), this loan is also offered to eligible surviving spouses of servicemembers.
When you’re applying for a VA loan, the property must undergo a VA appraisal to ensure it’s being valued accurately. If you’re a first-time homebuyer, understanding the ins and outs of VA loans and appraisals can be challenging, and even if you’re not, you may need a refresher. In this guide, we’ll explain the intricacies behind VA loan appraisal requirements so you can use your VA entitlement with minimal stress.
What is a VA loan appraisal?
A VA mortgage appraisal is a professional assessment to determine a home’s value.
Appraisals aren’t exclusive to VA loans. Whether you apply for a VA loan or any other type of mortgage, your lender will likely want to evaluate the property. The home appraisal helps determine the fair market value (FMV) and alerts the borrower if they are paying more than the home is worth. It also helps ensure the property meets basic health and safety standards.
A VA loan appraisal serves the same purpose, with a few additional details.
First, only an approved VA Fee Appraiser registered with the VA can conduct a VA appraisal. Second, the home must meet specific minimum property requirements (MPRs) that deem the property to be not only structurally sound but also sanitary as well. These MPRs also encompass the property’s location and various legal considerations.
For refinancing, the requirements vary. Cash-out refinances require appraisals because you’re tapping into your home’s equity, and the lender needs to determine the current market value of your property.
For an interest rate reduction refinance loan (IRRRL), no appraisal is required. The IRRRL, also known as a VA streamline refinance, is designed to simplify the process for eligible veterans by reducing paperwork and costs, including waiving the need for an appraisal in most cases.,
How does a VA loan appraisal work?
The appraisal ordering process for VA loans works a little differently from other types of loans, like conventional loans or FHA loans. It follows a step-by-step procedure overseen by the Department of Veterans Affairs.
1. Application and lender initiation
When you apply for a VA home loan, the process begins with the lender. Typically, the lender orders their own appraisal through a specific vendor that they currently work with. For VA loans, however, the lender must send a request to the VA for an appraisal to be ordered and performed.
2. VA assigns an appraiser
The VA then selects an approved VA fee appraiser to complete the appraisal. The lender is not allowed to schedule or order the appraisal. That job belongs to the VA, which manages the process for the homebuyer.
3. Conduction of the appraisal
The assigned VA fee appraiser conducts a thorough property inspection with two-fold aim of determining the home’s value as well as its adherence to the VA’s MPRs. Again, the appraiser works independently on behalf of the VA, not the lender.
4. Report delivery and review
Once the appraisal is complete, the VA fee appraiser submits their findings back to the VA and lender. The lender will review the appraisal and issue a NOV (Notice of Value) to the borrower.
Does the VA pay for an appraisal?
The VA does not directly pay for appraisals in the VA home loan process. Instead, the cost is typically the responsibility of the borrower (the veteran or servicemember).
With that said, the VA does set a maximum allowable fee for appraisals—which vary by state and region, as well as the complexity of the property—so that costs remain reasonable for the borrower. The VA closely monitors these appraisal fees and the lender must agree to the fee prior to completion of the appraisal. The VA provides a fee schedule and limits the amount that can be charged to the VA loan customer.
VA loan appraisal requirements
When an appraiser looks at a property for VA loan eligibility, they do so based on strict minimum property requirements.
These MPRs must be met before the loan is guaranteed as they are established by the VA to protect the interests of veterans, lenders, servicers and the VA itself.
- To be eligible for a VA loan, a home must meet the following standards:
- Roofing in good condition
- Functioning HVAC and electrical systems
- Accessibility from a private or public street
- Proper ventilation throughout the home, including in basements, crawl spaces and attics
- Adequate space for daily living activities, including sleeping, eating, dining, etc.
- Continuous access to water, sewage disposal and sanitation facilities
- No lead-based paint defects
- No wood with dry rot, fungus or wood-destroying insects (like termites)
What will fail a VA appraisal?
A VA appraisal can’t technically “fail,” since there’s no passing or failing involved in this process.
However, it can result in a low valuation if issues are present. This low valuation can cause a deal to fall through or require borrowers to come up with alternative solutions for moving forward, which we’ll discuss in more detail below.
Here are some common issues that result in low VA appraisals (or ones that don’t meet the MPRs):
- Safety hazards: Exposed wiring, broken stairs, missing handrails or other safety concerns
- Structural problems: Damage from water, damage on roof, cracks in foundation
- Pest infestation: Evidence of termites or other pests that destroy wood
- Inadequate heating: Non-functional or insufficient heating systems
- Non-functional utilities: Issues with plumbing, electricity or water systems
- Peeling paint: The potential for lead paint is particularly possible if the home was built before 1978.
- Improper ventilation: Lack of ventilation in attics, crawl spaces or other areas
- Water damage or mold: Visible signs of leaks, mold or mildew
- Non-operational appliances: Built-in appliances that are broken or missing
- Unpermitted additions: Rooms or structures added without proper permits
- Access issues: Inadequate access to the property, such as shared driveways without easements
- Non-compliance with zoning: Property use that doesn’t align with local zoning laws
- Unfinished construction: Incomplete renovations or unfinished areas of the home
- Health hazards: Presence of asbestos, radon or other environmental hazards
What happens if the home doesn’t meet the requirements?
If a home doesn’t meet the VA’s requirements, there are generally three possible courses of action. You can try the following:
- Ask the seller to make the necessary repairs and upgrades to bring the house up to standard.
- Request the VA’s approval for an official MPR waiver. These are assessed on a case-by-case basis.
- Know when to walk away and choose another, more eligible property.
Low appraisal
Another potential hiccup could be if the home meets the MPRs but the appraised home value estimate is below the selling price. In this case, you could try these actions:
- Work with your lender to determine if a request for a reconsideration of value can be submitted to the VA. This highlights additional sales data from comparable homes in the area that might help establish a higher value for the home.
- Present the appraisal findings to the seller to see if there’s room to lower the price.
- Pay the difference out of your own pocket.
- Check your contract for the VA escape clause that would permit you to cancel the contract without financial penalty.
- Find another, more eligible property.
Is a VA appraisal the same as an inspection?
Home inspections and VA appraisals are different in several ways. While both are important steps in the home-buying process, they serve different purposes.
A VA appraisal is required by the lender to ensure the property meets the VA’s minimum property requirements and to determine its fair market value. The appraisal focuses on the overall condition of the home to confirm it is safe, but it is not as detailed as a home inspection. It identifies obvious issues but does not delve deeply into the property’s systems or potential hidden problems.
On the other hand, a home inspection is a more thorough evaluation of the home’s condition, designed to help the buyer understand any potential repairs or maintenance needs. While not required by the VA or the lender, it is highly recommended for buyers. A home inspection examines all aspects of the property, including plumbing, electrical systems, HVAC and the foundation, often uncovering issues that may not be immediately visible.
In essence, the VA appraisal is primarily for the lender’s benefit, while a home inspection is for the buyer’s peace of mind.
VA loan appraisal vs. regular home appraisals
As you’ve learned, VA loan appraisal requirements are somewhat different from the standard appraisal you’d have for other types of home loans. While both assess the Fair Market Value (FMV) of the property and ensure that it’s in decent condition, VA appraisals go a bit further with MPRs.
Here are some key differences to pay attention to:
- Electric, heating and cooling systems: The VA requires all electrical systems to be up to code, which may not be required by other appraisals.
- Roofing: The VA requires roofing to be in good condition and have at least a few years of remaining use. Standard appraisals typically only demand the roof be in good condition.
- Paint: The VA requires properties to be free of lead-based paint defects and not be peeling, while standard appraisals typically don’t have requirements for peeling paint.
- Radon gas: The VA requires newly constructed properties to be tested for radon gas and for any high levels detected to be mitigated. Standard appraisals don’t usually have requirements about radon gas.
How long does a VA appraisal take?
A VA appraisal, like any other kind of appraisal, typically takes one to four weeks for the entire process to be completed. However, the actual on-site appraisal, where the appraiser evaluates the property, is relatively short and usually takes just a few hours.
The longer timeline accounts for scheduling, documentation and the appraiser’s final report submission. Keep in mind that timelines can vary depending on the location, appraiser availability and market conditions as well.
In summary
As a first-time homebuyer, understanding what’s expected and required of you is key as you go through the VA home loan process.
VA appraisals protect your investment while making sure the property meets the VA’s high standards for safety, functionality and value. Remember, the VA loan appraisal process is designed to support veterans and their families, so take full advantage of it to make sure you secure a home that’s truly worth it.
