During this unprecedented homebuying season, thousands of veterans are still closing on VA home loans every single week. But two parts of the process -- the VA appraisal and home inspections -- might look a bit different for some buyers, depending on how the coronavirus is impacting their community.
The VA loan benefit is still going strong.
Veterans continue to turn to their VA loan benefit in droves during a homebuying season impacted by the coronavirus pandemic. Thousands of veterans are closing on loans every single week. But parts of the process might look a bit different for some buyers, depending on how COVID-19 is impacting their community.
Two parts we’ll look at more closely here are VA appraisals and home inspections.
There are two distinct parts of the VA appraisal process, and one is just as important as the other.
The first part is the valuation, where the appraiser compares the property to recent comparable home sales in order to come up with a fair market value.
The second part is a high-level assessment of the property’s condition, which aims to ensure that veterans are buying homes that are safe, sound and sanitary. VA appraisers evaluate homes in light of the VA’s broad Minimum Property Requirements. Most MPR problems need to be fixed before a loan can close.
The appraiser’s physical presence at the property is typically a given. But the rise and spread of COVID-19 has led to changes at times, particularly when there’s a shelter-in-place order or when an appraiser or a home seller doesn’t feel safe with an in-person appraisal at the property
The solution to these types of issues are desktop and exterior-only appraisals.
Desktop appraisals are exactly what they sound like – appraisers don’t leave the comfort of their computer to issue these. Instead, appraisers use different data sources and mapping tools to assess a property and come up with a fair market value.
The obvious potential downside of a desktop appraisal is that the appraiser doesn’t actually set foot in the house to verify information or assess the property condition.
During the COVID-19 crisis, the VA loan program’s guidance is that desktop appraisals should be used in areas where there’s a mandatory quarantine or shelter-in-place order. These can also be used when state or local authorities determine appraisal work isn’t an essential part of the financial transaction for home loans.
Desktop appraisals can only be used when the financed loan amount will not exceed the VA’s county loan limit.
Desktop appraisals cannot be used if you’re buying a home in a community where there are no restrictions on people leaving their homes. In these communities, the VA’s guidance is that if a home seller or an appraiser is not comfortable with an in-person assessment, then an exterior-only appraisal should be used.
With these, the appraiser reviews the full exterior of the property and should conduct an in-depth interview with the home’s occupant or their real estate agent.
VA buyers face the same access limitations as with a desktop appraisal. The appraiser still isn’t getting a look at home’s interior.
In fact, some lenders may require buyers to sign off on these types of appraisals.
The VA is limiting exterior-only appraisals to financed loan amounts up to 1.5 times the county loan limit. Purchasing above that will require a full interior and exterior appraisal.
Homebuyers can look to keep their transaction moving forward if their appraisal turns up issues in need of repair. In these cases, lenders can close as long as the buyer accepts responsibility to complete the repairs within 180 days of their loan closing (the time can be extended with an OK from the loan program), with a reinspection to follow.
Lenders can also certify repairs themselves. Repairs involving lead-based paint must still be handled by a VA appraiser.
Homebuyers will have to acknowledge in writing and accept any appraisal conditions that are not met prior to their loan closing. The VA appraisal does not guarantee a home is free of defects.
Vacant properties still require a full appraisal unless the appraiser doesn’t feel safe doing an in-person assessment.
The VA’s appraisal appeal process is known as a Reconsideration of Value (ROV). VA buyers can seek an ROV if the property’s appraised value comes in lower than the purchase price. The process involves submitting to the appraiser additional recent comparable home sales that support a higher valuation and were not used in the original appraisal.
During the coronavirus epidemic, the VA is limiting Reconsideration of Value adjustments on purchase transactions to no more than 7 percent from the appraiser’s valuation or $10,000, whichever is great.
The VA is suspending ROVs for Cash-Out refinances for the time being.
Veterans purchasing where a termite inspection would be required can still move forward if inspectors are unable to evaluate the property. In cases where there’s no known or visible evidence of termite infestation, the home seller and their real estate agent have to certify to that in writing, and the veteran homebuyer has to sign paperwork noting there was no termite inspection.
The VA loan program recommends that homeowners in these communities get a termite inspection once the coronavirus epidemic passes.
Veterans buying homes with evidence of termite infestation must have a clear termite report within a year of their closing.
Veterans buying in communities where well water testing is suspended because of the coronavirus will have to sign a document acknowledging that fact. Lenders have to get a well test within 180 days. Before the loan can close, VA buyers also have to sign paperwork noting that they will pay to install a water filtration system if the water ultimately fails to meet safe drinking water standards.
The VA has waived well tests for refinances where the loan is already a VA-backed mortgage.
The coronavirus is also having an impact on home inspections. These aren’t mandatory, unlike the VA appraisal, but they’re always recommended. The VA appraisal is not as in-depth as a home inspection and doesn’t replace the need for one.
Quarantine and shelter-in-place orders are helping dictate inspection policies in communities across the country. Buyers would typically have the chance to accompany the home inspector during their time at the property, but that might not be possible.
Some inspectors might be willing to conduct a virtual inspection. Others will rely on the photos and narrative that are always part of the final inspection report.
Home inspections are negotiated as part of the purchase contract. Some sellers might be wary of having a home inspector at their property during the coronavirus crisis.
Talk with your real estate agent about how best to approach the home inspection during this challenging time.