Real estate agents can help better target your home search by focusing on properties that are likely to meet the VA’s appraisal guidelines and lender requirements.
The VA appraisal is meant to help veterans and service members purchase homes that are safe, sanitary, structurally sound and appropriately valued. There are broad criteria that a VA-backed home must be measured against, known as “Minimum Property Requirements,” or MPRs.
Some of these property requirements include:
VA-savvy agents can help you immediately identify homes that might prove problematic for the VA appraisal process or lenders. To be sure, property condition problems don’t mean a home is automatically out of reach. But some issues will need to be repaired or otherwise addressed before the loan can close, which means sellers or buyers may have to spend additional money upfront to keep the deal alive.
In addition to the VA’s property requirements, lenders can have their own standards that homes need to meet. That means some properties may not ultimately be eligible for financing from a particular lender, even if they otherwise meet VA guidelines.
It can be frustrating (and expensive) to get under contract on a home, pay for a home inspection and even an appraisal only to find out the property falls short of VA or lender guidelines. At that point, you have to to decide whether it’s worth it – or even possible – to move forward. Different lenders and different locales can mean varying property requirements.
Here are a few immediate red flags that could signal problems ahead with a particular home:
Condo developments need to be approved by the VA. Your lender or a VA-savvy real estate agent can help you determine if a development is already on the approved list. You can also check the VA’s searchable condo database. Don’t despair if you fall in love with a condo that isn’t in an approved development. Your lender can ask the VA to approve a development that isn’t on the list, but understand that process can take months to complete and isn’t guaranteed to succeed.
If you have your eye on the A-frame home down the street, you may want to reconsider. A VA appraiser will use recent comparable home sales, or “comps,” to help determine the value of a home. In the case of unique properties, the appraiser may have trouble finding similar homes that have sold recently. Lenders aren’t likely to consider financing a purchase without at least one good recent comparable sale.
Similarly, while there’s no acreage limit with VA loans, properties with a lot of land can sometimes prove problematic in terms of finding good comps. In addition, lenders may have their own in-house guidelines and requirements regarding property types.
For example, some lenders may not be willing to lending on:
Talk with your lender immediately if you’re interested in a property that’s in any way out of the ordinary.
Properties that have income-producing attributes may be a problem for some VA lenders. Defining what constitutes an income-producing property can get tricky, but things like a working farm, a outbuilding with a shop or even a horse barn can all be problematic. Lenders are usually concerned about financial liabilities and liens when there’s business crossover with your residence. Again, policies and requirements can vary by lender.
At Veterans United, we're generally OK with income-producing attributes unless an appraisal notes that the "highest and best" use of the property is commercial in nature rather than residential, or if those income-producing features may create future marketability issues with the property. Check with your loan officer if you have questions about a specific property.
As-is properties may come with a bargain price tag, but beware – it’s common for these types of listings to have serious structural issues or deferred maintenance that the seller doesn’t want to deal with. If an inspection or an appraisal turns up problems, these sellers aren’t likely to cover the cost of any needed repairs. You’d either have to pay for the repairs yourself to keep your loan alive, if that’s even possible, or move on to the next house on your list.
If the seller did any rehab work or made improvements to the home, make sure they (or their contractor) obtained all necessary permits. Building codes can vary by community, and not all renovations and home improvements require a permit from the local municipality. But if the seller failed to get a permit for work that requires one, you may have a headache on your hands. Non-permitted improvements can spell trouble on your VA appraisal report, and obtaining permits retroactively can be time-consuming. Look for the proper paper trail following any big home improvement projects.
Cracks or other foundation issues can seriously affect the structural integrity of the home. These can also be expensive repairs. Foundation problems would need to be repaired before a loan could close, and whether the seller will make the repairs is often the question. Paying for foundation work on a property you hope to purchase may not be a wise investment.
Working heating and cooling systems will be required in most parts of the country. The VA and lenders want to see a permanent heat source, which means space heaters and similar sources will not alone suffice. Homes with permanently installed non-electric, non-vented fireplaces or space heaters may be eligible, provided the buyer signs a “hold harmless” agreement and the unit meets applicable codes and has an approved oxygen depletion sensor.
VA doesn't currently require a heating system in about a dozen south Florida counties.
The roof will need to be in good shape and have sufficient remaining economic life. Just how many years that needs to be can vary depending on the lender. The VA doesn’t specify a certain number.
But some lenders may require a minimum number of years of remaining economic life. Policies and guidelines can and will vary.
If a home doesn't have sufficient remaining economic life, your purchase could be flagged as a risky investment. Older homes sometimes fail to meet other requirements as well. Stacked stone foundations, inadequate heating and cooling systems, lead paint and improper insulation are just a few things to look out for if you’re in the market for an older home.
A foreclosure occurs when a financial institution takes back a home from a borrower who’s unable or unwilling to pay. A short sale is when a bank allows homeowners to sell their home for less than what’s owed.
Buyers can be drawn to the prospect of substantial discounts reflected in distressed properties. But buyers can pay a price for that discount, often in frustration and delays. Purchasing a bank-owned home can take considerably longer than a traditional home purchase.
Another challenge to consider: Every potential VA property must go through the VA appraisal process. Many distressed properties haven’t been properly maintained and will fall short of the VA’s Minimum Property Requirements. Some sellers are willing to make repairs to bring a home up to VA standards, but banks may have other priorities. Banks usually want a quick, hassle-free sale, so they often prefer to sell properties “as is.”
Don’t set your sights on a fixer-upper in foreclosure. Even though banks want to sell quickly, many won’t make any repairs to their foreclosures. You may have more luck if your less-than-perfect home is a short sale property, as individual homeowners may be more willing to make needed improvements. You can also pursue an FHA 203k loan, which allows qualified borrowers to include money for repair and rehabilitation work.
Also, keep your expectations low if you’ve fallen in love with a wreck of a home. You can ask a bank to make repairs or even see if they’ll allow you to do so, but be prepared for them to say no. Always have a back-up plan in case the sale falls through, and don’t pursue foreclosures in poor condition if you’re on a strict timeline.
Understand that it can take longer to finalize the purchase of a distressed property, so your homebuying journey may take longer. Adjust your schedule and your expectations accordingly.