The unbeatable benefits of the VA loan program aren’t bestowed on every property that catches a military buyer’s eye.
In order to garner VA approval, every home must undergo a VA appraisal. And although the VA appraisal has a reputation for being rigorous, its intentions are honorable: ensuring that homes purchased by veterans are fiscally and structurally sound.
So how tough is the VA appraisal? In this post, we'll explore three factors that can influence any VA appraisal: VA appraisal guidelines, the appraiser assigned to the property and the individual lender.
Any appraisal will help a lender determine a property’s value. But VA appraisals go beyond conventional appraisals by incorporating a second function: ensuring that homes meet the VA’s Minimum Property Requirements (MPRs).
Veterans need homes in good repair, not dicey money pits. In pursuit of that goal, MPRs establish basic standards for a home and its contents. Electrical and plumbing systems must be in good condition, roofs must be defect-free and basements must be dry. VA appraisal guidelines can be strict and can eliminate fixer-uppers from contention. Many of the guidelines can be frustrating for military buyers who are considering older homes in need of renovation.
If a home fails to meet the MPRs the buyer will have to decide how they want to proceed. There are three main options:
But as an agent, there seven steps you can take if your military buyers receive word from an appraiser that the home needs repairs to pass the MPRs.
It’s important to note that VA appraisal guidelines aren’t as different from modern conventional appraisal standards as they once were. Thanks to the housing market meltdown, some of the erstwhile differences between VA and conventional appraisals have been leveled. VA lenders have always been hesitant to risk funds on ramshackle properties. More conventional lenders are headed in that direction and tightening purse strings for properties in need of serious repair.
Some MPRs are very specific, but others allow significant room for interpretation. The appraiser needs to determine if the home meets three main tenets: the home must be safe, structurally sound and sanitary. The VA instructs appraisers to watch for “defective construction,” but doesn’t specify what qualifies as “defective.” Properties must be free of safety hazards, but the VA stops short of providing a comprehensive list of safety threats.
The guidelines are likely vague for a reason. The appraiser is the "boots on the ground" for the VA. They are the ones who physically see the home, walk through it and assess whether it's safe. Every home is a little different and as a result the guidelines need to provide ample room for the appraiser to make a judgment call and determine if the home is safe.
The “toughness” of any particular appraisal also has a lot to do with a lender’s own policies. The VA appraisal is important to a lender. Properties that don’t meet all VA criteria are rejected by the program and can put a lender at risk. In issuing a VA loan, a lender can choose to add any number of property restrictions. Some lenders are extremely strict, while others are more accommodating.
For example, while the VA allows mobile home purchases through the VA loan program, many lenders refuse to extend financing on these properties. If a homebuyer wants to use their VA loan on a mobile home, they'll need to ask specifically whether their lender of choice offers this type of financing.
If your buyer is considering a VA loan, make sure you’re up-to-speed with both the VA MPRs as well as any lender overlays. Pursuing an ineligible property is a poor use of your resources and isn’t fair to your military clients. Provide the best service possible with a basic understanding of VA MPRs and VA loan criteria.
If you’re working with a military buyer it’s important to have knowledge about the VA’s MPRs. If the VA appraisal comes back lower than you expected, remember that you can challenge that appraisal with The Reconsideration of Value and a VA-savvy lender like Veterans United Home Loans can help guide your military clients through the process. You can speak with a Veterans United specialist anytime at 855-524-7279.
We want to hear about your experience with VA appraisals. What advice would you recommend for buyers and fellow agents?