Using Your VA Home Loan With a Unique Property

Think Twice About That A-Frame

You want to use your VA home loan benefit. You’ve gone through the pre-qualification and pre-approval process and now you’re under contract. Warning: you’re not in the clear yet. First an appraisal will be conducted to determine the value of the property and whether it’s marketable. The VA and lenders will restrict the purchase on some unique homes due to the lack of marketability.

The main purpose of restricting the purchase of certain unique properties is the marketability also frequently referred to as the homes re-sale factor. If a home isn’t marketable to a wide audience, then you may have difficulty selling the home when you are ready to move. The VA and lenders want to protect you from a situation where you get stuck with a home you no longer want (or can no-longer afford) so they have established marketability guidelines to protect your investment and theirs.

What kind of unique characteristics are we talking about? It’s a good question with a varying answer. There are some homes that may be considered unique in one area and common in another. In this article we’ll discuss a few types of unique property situations and in what circumstances they’d pass the marketability test.

Brief Overview Of The Appraisal Process

The appraisal and notice of value: these two documents are key when determining marketability of the home. Once you have a home under contract an appraisal is ordered. An appraiser selected by the VA conducts a review of the property and assesses a value based on similar homes that have recently sold in the area, also referred to as comparables. Then a staff appraisal reviewer (SAR) who works for your lender will review the appraisal, confer with the appraiser regarding any issues and draft a notice of value (NOV).

The NOV confirms or denies the value set by the appraiser. Before issuing the NOV the SAR takes and in-depth look at all comparables used on the appraisal to ensure that the homes used are in fact similar to the home in question. You can check out this post on VA home loan appraisals for an in-depth look at the appraisal process.

The Type Of Home

Considering a Log home, geodesic home or an A-frame? The key factor with these unique homes are the comparables we discussed above. If an appraiser is able to find other similar homes in the area that have sold recently, the home is likely an acceptable choice. But, if the home is a one-of-a-kind you will need to investigate further with your agent and loan officer. The best way to approach a unique home is by talking with your VA specialized real estate agent. She’ll  run a market analysis to determine if there are acceptable comparables. This can save you money by preventing you from ordering and paying for an appraisal on a home that will not pass the VA’s marketability test.

You’ll be more likely to find comparables for log homes or A-frames as opposed to geodesic homes. What’s a geodesic home? These homes are also called geodesic domes or dome homes. They’re often circular and can look similar in shape to a half golf ball. As a rule of thumb I’d focus your search away from geodesic homes as they’re very uncommon and as a result they won’t likely pass the marketability test.

Another way a unique home, such as a log cabin can pass the marketability test, is with a specific statement from the appraiser. He would need to state that the unique attributes of the property won’t negatively affect the home’s marketability. It’s best not to rely on the appraiser providing this statement initially. But, it’s a workaround that may save the home from being denied if an appraiser feels the statement is accurate.

Two Homes On One Property

Do you want to refinance your current home into a VA loan, or purchase a property that has more than one residential building? This situation comes up more that you might guess. If you want to purchase a property that has a main residence and a mother-in-law’s suite, a separate small apartment or even another home on the property you may run into issues with the appraisal. The main concern for an appraiser in this situation (just like in the one above) is his ability to find comparable properties to calculate the appraised value. To clarify here, this doesn’t mean that you’ll run into marketability or appraisal issues if the home is a duplex or has a small shed or barn. In this example I am specifically talking about two stand alone residences.

One workaround that may solve your problem is to have the second property surveyed separately. Doing this will require extra cost on your end and really only works if the homes have a fair distance between them. This workaround is very situation specific so I would suggest talking with both your VA mortgage specialist and your VA specialized real estate agent prior to ordering the survey.

There are a multitude of other situations that could classify a home as unique, but the situations discussed above are by far the most common. It’s a good idea to have your real estate agent and VA mortgage specialist communicate about the specifics of a property prior to making an offer so that everyone is on the same page with regards to any unique characteristics. This will allow you to determine early on what workaround options are available or whether you should focus your search on other properties and save yourself the time and cost of an appraisal ($300 – $500) for a home that won’t overcome marketability hurdles.

To learn more about the VA home loan process you can review this really helpful step-by-step guide, and as always, if you have any additional questions, please don’t hesitate to email me at samantha@vu.com.

Photo courtesy Wickerfurniture