The Department of Veterans Affairs offers the VA Home Loan program, designed to help eligible veterans and certain qualified surviving spouses of veterans to buy affordable homes. But the VA home loan benefit isn’t the only home buying program designed to help veterans. There are many state-run programs unrelated to the VA offered to qualifying veterans.

The rules for these programs vary by state and depending on location there may be income limits, caps on sale prices, and some may be specifically need-based.

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You can find state-based veteran housing benefits in states including, but not limited to:

• Alaska
• California
• Florida
• Georgia
• Indiana
• Maryland
• Massachusetts
• Mississippi
• Missouri
• Nebraska
• Nevada
• New York
• North Carolina
• Ohio
• Oregon
• Pennsylvania
• Tennessee
• Texas
• Utah
• Washington
• Wisconsin

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What You Need To Know About State-Run Veteran Friendly Home Loan Programs

Not all state-run home loan or home loan assistance programs for veterans are alike. Requirements, income limits (where applicable), and first-time homebuyer status rules will vary from state to state.

Some programs may not be need-based, while others are. Some veteran-friendly home loan programs have specific property types and loan term rules, and others may not be strictly limited to veterans or active duty military members.

The information listed on some military-oriented websites and blogs can get outdated quickly. You will likely find dead links to programs written up on certain blogs which may lead one to believe the programs themselves are no longer running.

This is often not the case. If you find dead links to veteran-friendly home loan programs on a state government website, try searching the site itself (or use Google) for the name of the home loan program you need; chances are the program may have been relocated on the official site to a new URL or web address.

But in some cases, redirected URLs or bad links may actually be an indication that the program has been closed or modified.

For example, if you search the web for the Massachusetts-based Home for the Brave Home Loan Program (which offers reduced mortgage loan interest rates for qualifying military members and certain surviving spouses), you may find an outdated link that redirects to the more generic Veterans’ Services page. Searching for the program reveals other links that are also (at the time of this writing) no longer active.

So while it can pay to do some extra searching for a program near you, sometimes the research hits a dead end due to a program that was terminated without much press or public notice.

No Two State-Run Veteran Friendly Home Loan Programs Are Exactly Alike

Terms and conditions for veteran home loan programs will vary by state. In some cases there may be need-based programs that require the applicant to meet an income limit. In other need-based programs the applicant may be required to be homeless or be in danger of becoming homeless in order to qualify.

But not all programs are designed with homelessness or low-income needs in mind.

Some, like the Maryland Homefront program, simply offer special interest rate discounts and fixed rate mortgages for qualified veterans and/or family members. The Homefront program also provides funds for down payments and closing costs for new purchase loans.

In some cases, including the Homefront program, attending a home buyer’s orientation or home buyer counseling class is required as a condition of participating in the program.

Some Programs Offer Specific Kinds Of Assistance For Military Members And Families

Some veteran-friendly state programs provide a specific kind of help, such as down payment assistance. Programs of this nature have been offered in Illinois such as @HomeIllinois, which has provided $5,000 per loan for down payments, closing costs, and other assistance. This assistance was offered to Illinois Veterans and military families but has also been provided to first-time buyers, repeat buyers, and those looking to refinance.

Some Programs Offer Not Assistance, But Rather The Home Loan Itself

A smaller number of states offer veterans a home loan (with vet-friendly perks or incentives) instead of simply offering to help pay for loan-based expenses.

The State of Oregon has one such program described on the official site as “separate and distinct from the federal VA Home Loan Guaranty and has lent Oregonians approximately $8 billion of low-interest home loans to more than 334,000 veterans.”

This Oregon state veteran’s home loan benefit is a conventional loan available for owner-occupied single family homes. You can purchase a home under this Oregon program if you qualify with military service even if you do not live in the state; the only requirement is that the home purchased with this Oregon state veteran’s home loan option be located within state lines and is occupied by the borrower within a reasonable amount of time after closing.

Some Veteran-Friendly Loan Programs Are Not Limited To Veteran Or Currently Serving Military Members

The Colorado Housing Authority has an excellent example of a vet-friendly mortgage loan program that is not restricted to military members and their families. The Colorado FirstStep and FirstStep Plus home loan programs are intended for “first-time homebuyers, qualified veterans, and non-first-time homebuyers purchasing in targeted areas” according to the official site.

This program, as you can see from the above, does not limit itself to military house hunters. But there are some important limitations to this particular program including:

• Offered for new purchase home loans only
• Income caps and home price limits apply
• Only available for FHA 203(b) mortgage loans
• Minimum FICO score requirement includes 620+ but borrowers “with no credit score” are permitted
• There is also a CHFA “Second Mortgage” program offered with down payment assistance, and help for other expenses

Some Programs Don’t Help Until After The Sale

There are many state-run programs that do not feature help with down payments or home loans themselves, but rather offer tax credits. One good example is the Delaware First-Time Homebuyer Tax Credit which is a tax credit that is good for 35% of the mortgage interest paid at a maximum benefit of $2,000 per year.

Normally, to be considered eligible for the Delaware First-Time Homebuyer Tax Credit, a borrower is required to:

• Meet an income cap
• Have a household income below the maximum income limits for the program
• Occupy the home purchased as the primary residence
• Not have owned a home in the past three years as your primary residence

The last requirement is waived for those applying with a “Qualified Veteran Exemption” which must be submitted with the application for this Delaware program.

Getting Started With Veteran-Friendly Home Loan Programs

The best place to begin searching for home loan programs that can benefit veterans, active duty, Guard and Reserve house hunters is likely your state’s Department of Veterans’ Affairs or Division Of Veterans Affairs official site. Remember, you need to search for the state veteran’s page and not the federal Department of Veterans Affairs offices in your state.

That said, an office of the federal VA program in your area may have information about state-provided veteran’s services so it’s not a waste of time to call the regional VA office nearest you.

You can also ask a lender, real estate agent, or other mortgage professional about well-known veteran programs in your area. Remember that not all government agencies talk to each other on a regular basis and sometimes what is known at your local government office may be different than at another branch in another housing market. But most state-level programs do have some degree of visibility on these sites regardless.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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The VA appraisal process is one of the most important steps toward home ownership; some don’t understand the power of the appraisal to push the loan forward or stop it in its tracks if there are issues that need correcting (as a condition of loan approval) or whether the condition of the home renders it unsuitable for a VA mortgage.

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The VA Appraisal: What It Is And What It Is Not

It is very important to understand that the VA appraisal is NOT A HOME INSPECTION even in cases where the lender or other professionals misuse the term “inspection” when they really mean “appraisal.” Always remember that the appraisal is a tool designed for the LENDER and not the borrower.

The job of the appraisal is to insure the home meets minimum standards (nothing more) and to determine the fair market value of the property.

What The VA Appraisal Process Does

The VA appraisal process includes a review (not an inspection) of the home, and also a look at comparable properties in the area to see how the home measures up to similar houses in the market.

The appraiser will view the roof (from the ground-she is not required to step onto the roof which is one big reason why appraisals can never take the place of a proper home inspection), the attic, the basement where applicable, take a look at the mechanical systems in the home, etc.

The appraisal process includes a good amount of paperwork that the VA appraiser must complete and turn into the lender, who then takes the recommendations of the appraisal and applies them to the loan including the fair market value.

Appraisal Results

Sometimes the VA appraisal is lower than the asking price, and sometimes it is higher. The VA loan guaranty amount is based on whichever dollar amount is lower. That brings some important questions, the biggest of which is this:

What happens when a VA appraisal comes in lower than the asking price of the real estate?

When the appraisal is lower than the asking price, it essentially means that the lender does not place a value on the home as high as the seller.

In such cases the borrower is free to continue with the purchase loan transaction to buy the real estate, but the difference between the asking price and the appraisal would have to be paid by the borrower in cash at closing time and cannot be financed into the loan amount.

Does The Borrower Have To Complete The Sale If The Appraisal Comes In Low?

No. The VA loan program features an “escape clause” that permits the borrower to walk away from a home loan penalty-free in cases where the appraised value is lower than the asking price.

The VA and the lender cannot force the borrower to come up with the difference in cash to complete the transaction. The borrower cannot be financially penalized for doing so in these cases. Even if the purchase agreement does not specifically contain language providing the escape clause, it must either be added to the loan agreement or the VA commitment in this area must be honored regardless.

What To Do If The VA Appraisal Comes In Low

In cases where the VA appraisal comes in lower than the sale price, some borrowers may be tempted to request a second appraisal.

It is important to understand the appraisal process in such cases to know what you are specifically permitted to do; the appraisal process ends with the VA appraiser sending a Notice Of Value (NOV) to the lender. If the  NOV comes in low, there may or may not be some recourse depending on circumstances.

In general, it is not permitted to request another appraisal just because there is a difference of opinion over the NOV dollar amount. However, if there is information that should have been considered that could affect valuation, or if the appraisal was not done according to VA standards or other applicable guidelines, there may be justification for a new appraisal or a reconsideration of the NOV.

But you don’t have to ask for a new appraisal to get the NOV looked at again. According to the VA official site, “After a notice of value is issued, the value estimate or any NOV condition or requirement may be changed” in cases where the change is “clearly warranted and fully supported by real estate market or other valid information which would be considered adequate and reasonable by professional appraisal standards.”

You may also be able to request another look at the NOV in cases where “the NOV’s issuance involved fraud, misrepresentation or substantial VA or LAPP lender administrative error and action is necessary to make the valuation consistent with the real estate market.”

Is A Second VA Appraisal Possible?

VA loan rules in this area include the following instructions to the lender:

A new VA appraisal must not be requested for any property which already has a valid NOV.  However, an additional appraisal not assigned by VA can be used to support a request for an increase in value, provided the veteran purchaser was not required to pay any portion of the cost of that additional appraisal.”

Note that this portion of the rules makes a clear distinction between the NOV and the appraisal itself. Yes, you may be able to request a review of the Notice of Value, but requesting a new appraisal process once a valid NOV is in place is generally not permitted, as we see from the rule above.

Other Options

If the appraisal comes in low and does not require a reconsideration of value, the borrower is free to negotiate with the seller to get a price closer to the appraised value of the property. You can negotiate with the seller and see if there is any flexibility along those lines.

But some borrowers already have their minds made up that they want that specific property and are willing to pay the difference between the asking price and the appraised value of the home.

In such cases, the borrower is required to pay this at closing time as a condition of loan approval. The difference cannot be financed into the loan amount.

It should be noted that this payment is separate from any down payment you may wish to make or are required to make depending on circumstances. Some borrowers choose to make a down payment even on zero-down VA home loans because doing so reduces the amount of the required VA loan funding fee.

But paying the difference between the asking price and the appraised value of the home is technically not the same as a down payment. Remember, a down payment reduces the principal of the loan amount. The money you pay to make up the difference between the sale price and the NOV does not affect the principal amount of the loan.

You will need to consult with a participating VA lender to learn what kinds of payments in this area may or may not be technically permitted to be considered a down payment. VA loan guidelines are subject to change due to legislation, policy adjustments, and other variables.

That said, the VA Lender’s Handbook has statements in certain sections that seem to indicate that paying the difference between a Notice of Value and the sale price of the home**may** be considered a form of down payment, as evidenced by the following quote from Chapter 9 of the VA Lender’s Handbook discussing second mortgage procedures for a borrower who needs a second mortgage taken out at the same time the initial mortgage is applied for to cover certain closing costs.

“Proceeds of the second mortgage may be used for a variety of purposes, including but not limited to:

• closing costs, or
• a downpayment to meet secondary market requirements of the lender. But may not be used to cover any portion of a downpayment required by VA to cover the excess of the purchase price over VA’s reasonable value. (Emphasis ours)”

Whether this implies that paying the difference may be constituted as a down payment for the purposes of calculating the VA loan funding fee may require the borrower and lender to query the Department of Veterans Affairs as to the most current VA loan policy on this topic. You can contact the VA directly to ask questions about this issue and the most up-to-date policies by dialing 1-800-827-1000.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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VA home loans, like most mortgage loan transactions involving a “forward mortgage” or new purchase loan, require an appraisal. The VA appraisal process is sometimes referred to as an “inspection” even by those in the industry who should know better.

The very first thing a VA loan applicant should understand about VA appraisals is that they are NOT inspections, do not replace the borrower-initiated home inspection which must be arranged and paid for independently of the VA appraisal process by the VA borrower.

If you rely on the so-called VA inspection (which again, is an appraisal and NOT an inspection) you are doing the home loan equivalent of buying a car without test driving it first.

What borrowers need to know about the VA appraisal process includes the nature of the procedure, what it is intended to do, and who benefits from the appraisal.

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VA Home Loan Inspection Requirements (NOT VA Appraisal Requirements)

A VA inspection is something the borrower will arrange, and includes a very complete look at the property. Keeping in mind that the inspection is not the appraisal, you should know that your borrower-arranged inspection will be an in-depth look at the home including the foundation, roof, electrical systems, crawlspace, etc.

The inspection is a tool for the borrower, while the appraisal is a tool for your participating VA lender. The two have quite different purposes – the inspection is for the borrower to make a fully informed choice about purchasing a piece of real estate and the condition of that real estate.

VA Home Loan Appraisal Requirements

The VA appraisal is a tool for the lender to insure the home meets MINIMUM standards and to establish a fair market value of the real estate by doing a basic review of the home’s condition and comparing that property to others on the market that may be similar to it.

These similar properties are known in the mortgage lending industry as “comparables” and they can be an important factor in the valuation of the home.

VA loan appraisal requirements include reviewing a wide range of the home and its’ systems. These areas must meet the VA standards plus any applicable state or local building code or other legal requirements that may be unique (or not) to the housing market the home is in.

What The VA Appraiser Is Actually Required To Do

The VA loan rulebook states in Chapter 11 that the VA appraiser is personally required to do all of the following:

• view the interior and exterior of the subject property (except on proposed construction cases) and the exterior of each comparable.
• select and analyze the comparables.
• make the final value estimate.
• sign the appraisal report as the appraiser.

Furthermore, VA requirements of the appraiser include NOT recommending “…electrical, plumbing, heating, roofing or other inspections only as a measure of liability protection.”

The idea behind this guideline is that a home’s conditions “that do not appear to meet” VA minimum property requirements should get a requirement to correct, repair, or replace the problem area rather than having it inspected. “An inspection should be recommended only if there is an indication of a complex problem requiring a professional opinion,” according to the VA official site, “…such as pests, site drainage, structural defects, safety concerns, code violations, etc.”

VA Appraisals And “Remaining Economic Life”

The VA Lender’s Handbook has instructions for the appraiser regarding the remaining economic life of the home to be purchased with an FHA mortgage. If a home purchased with a VA mortgage cannot be sold by the owner due to factors that diminish the value of the home, it may not be suitable for a VA mortgage.

VA instructions to the appraiser on this front include the following:

• If the estimate of remaining economic life is less than 30 years, the appraiser must provide a supporting explanation, based on either known economic factors or observed physical condition.
• If the estimate of remaining economic life is 30 years or more, the appraiser must state the estimate at its maximum (for example, 40 years).

Remember that there is no one-size fits all rule in this area; the appraiser’s judgment will be very important in making the determination to approve or deny a property based on a variety of factors including the remaining economic life of the home.

VA Appraisals And Building Code

 If a home does not meet state or local building code, it must either be brought into compliance (where possible) or the loan cannot be approved. It is true that some properties are simply not eligible for VA mortgages due to their condition, location, or other factors. Remember, VA loan guidelines never override state or local laws. What may be acceptable in a general sense to the VA may not be acceptable to the local authority, and VA loan rules defer to the local authority in a variety of ways.

VA Appraisals: The Home Must Be Eligible

A VA appraisal is not possible on a home that is not primarily residential in nature. A VA appraisal is not possible for any home that is not classified and taxable as real estate or real property. This is true even if the property is not taxed – it must be classified as real property. What does this mean?

It means you cannot get a VA appraisal on any type of home that is not to be permanently fixed to a foundation that meets federal guidelines. You can’t get a VA appraisal on a houseboat, an RV or other “homes on wheels”, etc.

Mobile homes, manufactured homes, and modular homes are all eligible for VA loans (and therefore, VA appraisals) as long as they meet VA and state guidelines, will be transported directly to the site where they will be situated, and affixed to a permanent foundation.

VA Appraisals: Mechanical Systems In The Home

The VA appraisal process requires all mechanical systems in the home to be of adequate size and power to fully service the property they are installed in; if an HVAC system, for example, is not strong enough to properly heat and cool the entire property, it would not “pass” the appraisal and corrections (plus a compliance inspection) would be required as a condition of loan approval.

VA Appraisals: The Roof

Here is one area where the difference between a VA appraisal and a home inspection are very noticeable. A VA appraisal does NOT require the appraiser to step onto the roof. The roof may be visually inspected, but there is no on-roof activity.

A home inspection (that the borrower arranges and pays for independently of a VA appraisal) will have the inspector taking a much closer and in-depth look at the roof than a VA appraiser would.

There must be no evidence of leaks, excessive moisture, loose shingles, or other problems. A VA appraiser that notices any of the above may require corrections/repairs as a condition of loan approval.

VA Appraisals: The Attic and Crawlspace

VA appraisers are required to “view but not enter” crawl spaces and attic areas of the home where applicable. The appraiser must report “any significant defective conditions observed.”

VA Appraisals: Wells, Septic Systems, And More

The Department of Veterans Affairs states clearly that homes served by wells, septic tanks, and other systems that may not be hooked up to a local water utility may be eligible for VA loans if these systems meet VA standards and/or those set by the local health authority.

The Department of Veterans Affairs also takes a firm stand on wells, water purification systems, septic systems, etc. by stating that the VA itself DOES NOT set the health and environmental requirements in this area – the local health authority will have the jurisdiction here.

That means that the seller and buyer must understand that any requirements are local ones and the local authority must be consulted if you need to know what they are. The VA does not maintain copies of state and local laws that may be applicable; borrowers and sellers must do their own homework in this area.

VA borrowers may find that being connected to the local utility may be required “whenever feasible” but such feasibility may be determined by a variety of factors and the VA is not the determining authority in such cases; the VA defers to the local authority.

VA Appraisal Issues That May Be Unique To Certain Kinds Of Properties

Condo units cannot have restrictive clauses that prevent the borrower from freely selling or transferring the property; the same is true of any home that may fall under the jurisdiction of a Homeowner’s Association agreement.

Mobile homes and manufactured homes must not be older than 1976. The FHA and HUD official site states clearly, “(Mobile or manufactured) Homes built prior to June 15, 1976, even with modifications, do not meet the HUD standards and cannot be accepted as compliant with the HUD Code.”

Homes in certain natural disaster zones, coastal barrier areas, or other special regions may not be approved for an FHA mortgage or may be approved IF the borrower is willing to pay for additional hazard insurance. Some of these requirements and/or prohibitions may depend in lender standards, state law, and FHA/HUD requirements.

Properties that have mixed zoning issues may or may not be problematic depending on state or local laws; the FHA and HUD do not generally address zoning issues specifically, relying on the local authority instead.

In any case, a mixed-zoning property must, in order to qualify for an FHA mortgage, be primarily residential and non-residential use of the home must not detract from the residential nature of it.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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How can you get a VA home loan with bad credit? Many borrowers want to know if a VA mortgage is possible with bad credit, and under what circumstances. There are several important things to know about VA home loans that will help you better prepare for your home loan application.

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VA Home Loan Eligibility Does Not Guarantee Loan Approval

One of the most important things to remember about using VA home loan benefits is that your eligibility for the VA loan program does not guarantee you a loan. All VA loan applicants are required to financially qualify the same way all home loan applicants are regardless of the type of mortgage you seek.

That means credit scores, credit history, and other financial information will be very important for the purposes of home loan approval. The VA loan rulebook states, “By law, VA may only guarantee a loan when it is possible to determine that the Veteran is a satisfactory credit risk, and has present or verified anticipated income that bears a proper relation to the anticipated terms of repayment.”

The VA does not set FICO score requirements-that is the job of the lender, so your FICO score requirements may vary from one participating lender to another. That is one reason why it is so important to shop around for a participating lender-you may find more forgiving credit requirements from one company and not another.

VA Loan Basics

 The VA does not lend money to the borrower (except for certain Native American Direct Loan transactions which may or may not be possible depending on the qualifications of the borrower). A participating lender will underwrite and issue the loan with a guarantee from the Department of Veterans Affairs.

VA loans have a no-down payment feature, but borrowers with bad credit may be required to make a down payment as a condition of loan approval; this is one example of a compensating factor the lender may allow for a bad credit borrower who seems like an acceptable credit risk but simply has some past credit mistakes that are still on the record.

VA Home Loan FICO Score Requirements

As mentioned above, the VA does not set or regulate FICO score requirements. Borrowers who have bad credit will need to first assess their FICO scores and credit history before deciding to apply for a mortgage loan.

In general, you may find that participating lenders require FICO scores in the mid-600 range for the most favorable rates and terms.

Is There A Bad Credit VA Home Loan?

Technically speaking there is no provision for bad credit home loans associated with the VA program. That does not mean that you are automatically barred from a home loan if you have less than perfect credit but it does mean you may, depending on the nature of your credit history, be able to qualify for a home loan with a bit of extra work.

What does that mean? For starters, everyone’s idea of “bad credit” is different, but in general a lender will have a hard time justifying a home loan with the best terms for borrowers with FICO scores under 600, those who do not have a solid 12 months of on-time payments on all financial obligations at application time, and those who have a foreclosure or bankruptcy on their records that has not been fully discharged or settled.

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VA Home Loans For Borrowers With Low FICO Scores

Not all borrowers will be eligible for a VA mortgage; some credit scores are just too low for the lender to take a risk on. Others, who may have FICO scores at or near the low 600s may find the lender willing to work with them, especially those with marginal FICO scores who are willing to make a down payment, agree to a higher interest rate, etc.

Fixing Low Credit Scores

Borrowers with low credit scores should avoid paying third parties for dubious “credit repair” schemes. There are several things you can do yourself to improve your credit score for free.

What are these things? Work to establish a minimum of 12 months of on-time payments on ALL financial obligations. Don’t bother applying for a home loan without this 12 month payment record if you are concerned about your ability to get approved for a home loan due to credit issues. The on-time payment record will go a long way toward improving your credit scores, but it takes time.

Your debt ratio is just as important as your credit score when it comes to home loan approval. If more than 40% of your income is taken up by your monthly financial obligations, you should work on lowering that percentage long before applying for a new home loan of any kind, VA or not. Lowering your debt ratio can help improve your FICO scores.

If you carry credit card balances above the 50% mark (where your credit limit is concerned) you should work on reducing those balances below the halfway mark on all cards where possible. This not only lowers your debt ratio but also helps your credit score.

VA Home Loans For Those Who Have Experienced Foreclosure or Bankruptcy

VA mortgages are definitely possible for those who have experienced a foreclosure or bankruptcy but there are many variables that may affect the transaction. The first and most important thing to know is that in the wake of a bankruptcy or foreclosure action, there is a mandatory waiting period borrowers must sit out before they are permitted to even apply for a new mortgage.

This is known in the industry as a “seasoning period” and borrowers should know that it does NOT begin when the bankruptcy is FILED, or the foreclosure is INITIATED, but rather once the procedure has been fully discharged. That means if the home is still in the owner’s name following a foreclosure action, the seasoning period has NOT started yet and the full duration of the waiting time will apply.

This waiting period may vary in length depending on the nature of the proceeding, the lender’s standards, state law, and other variables.

VA home loan rules also state that the borrower must, during the seasoning period, work on establishing acceptable credit patterns and responsible use of credit.

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VA Loan Rules And Lender Requirements

One of the most important things you should know about applying for a VA mortgage, bad credit or not, is that participating VA lenders are not all alike. The requirements for one lender may be more strict than another.

If you find a VA lender willing to work with you and your circumstances, be sure to ask what specific FICO score ranges are allowed for the loan you seek, what compensating factors may be required if your credit scores require them, and what you can do in the meantime to get a more competitive rate and terms from that lender based on specific credit requirements and financial qualifications.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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The VA home loan benefit is one of the most popular military benefits; first-time home buyers who are not military members or otherwise eligible to apply for a VA mortgage have a strong envy of those who are able to get a VA mortgage because of the zero-down payment option in addition to more flexible credit guidelines than for conventional mortgages, and no private mortgage insurance requirement.

But VA borrowers can make the same mistakes as other home buyers and one mistake in particular can become a major problem, sometimes within the earliest days of owning the home. Smart house hunters know to avoid this pitfall, and inexperienced home buyers learn too, but sometimes the hard way.

What is this classic mistake and how can a VA borrower avoid it? The key is to understand how the home loan process works and what consumers need to do to protect themselves from hidden problems lurking in a home becoming a major money pit.

The Problem: Making A Fully Informed Decision To Buy A Piece Of Real Estate

How do you, the borrower, know the true condition of the home? Unless you have experience with construction, and home construction in particular, how do you really know the true condition of the roof, the foundation, the electrical systems in the home, and other areas? The fact is, many borrowers don’t know the first thing about leaky roofs, shifting foundations, mold, HVAC systems that aren’t big enough to service the home properly, or other potential problems.

To get an idea of the true condition of the home, you need an expert to look at the property and identify potential problem areas. We’ll get to that in a moment, but first it’s important to understand the VA mortgage loan process and one important area in particular-the VA appraisal.

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The VA Home Loan Process

When you find a home you wish to purchase with your VA home loan benefits as an active duty military member, Reservist, or as someone who is a military retiree or separated from service, you make an offer to the seller, work with your lender on the mortgage loan, and await the results of the mandatory VA appraisal.

The VA appraisal is a process the lender initiates; the appraisal is a tool for the lender to determine the fair market value of the home and to insure the property meets minimum VA loan standards.

The word “minimum” is the key portion of that sentence.

The VA Appraisal: A Tool For The Lender And Not The Borrower

The appraisal process is designed for the LENDER. It is not designed for the borrower. The VA appraisal does NOT mean your home has been inspected for all potential issues.

This confuses some borrowers, especially first-time home buyers, because people in the mortgage industry including your lender often use the word “inspection” when they really mean “appraisal”.

But an APPRAISAL is NOT an inspection and DOES NOT go into enough detail to give a borrower all the information they need to make an informed choice. The appraisal is, compared to the home inspection, a comparatively faster process and does not require the appraiser to be an expert in specific areas of the home. The appraiser is not required to step onto the roof, and does not have to know how HVAC systems, plumbing, or other aspects of the home operate.

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The Fatal Mistake Home Buyers Make That You Should Take Pains To Avoid At All Costs

Borrowers hear the lender, real estate agents, and other people in the mortgage industry referring to the appraisal process as an inspection, and assume that when the home “passes” the appraisal, that their home has been INSPECTED.

It has not.

If you or your co-borrower(s) did not PERSONALLY arrange for a home inspection, you have not had one. And if you have NOT had a home inspection, you should NOT commit to the purchase of the property.

Buying a home without getting a home inspection is like buying a car you did not test-drive. It is a very common mistake, but it’s one that can cost you thousands of dollars later down the line.

For Your Protection, Get A Home Inspection

The home inspection, unlike the VA appraisal, is optional. The appraisal is mandatory and ordered by the lender. The inspection is the borrower’s responsibility and as stated previously, if you did not order and pay for a home inspection, you did not have a home inspection.

What’s more, mortgage lending sites have comment sections full of complaints from borrowers who purchased a home thinking that their appraisal WAS an inspection, and asking for advice and wondering why their new home has a leaking roof, a flooded basement, poor performance in the heating and air conditioning systems, mold, or other issues that the appraisal is not necessarily going to catch.

If you fail to get a home inspection, there is no recourse for you in such cases-the VA will not be able to get you a refund, cancel the loan, etc. You are essentially stuck with the home and its problems that should have been spotted by the home inspection.

The Department of Housing and Urban Development official site has a page dedicated to this problem; they issue a publication titled For Your Protection, Get A Home Inspection which includes the following advice:

A home inspection gives the buyer more detailed information than an appraisal–information you need to make a wise decision. In a home inspection, a qualified inspector takes an in-depth, unbiased look at your potential new home, which is designed to do several things:

• Evaluate the physical condition: structure, construction,and mechanical systems
• Identify items that need to be repaired or replaced
• Estimate the remaining useful life of the major systems,equipment, structure, and finishes

Appraisals Are Ordered By The Lender, Inspections Are Ordered By The Borrower

Borrowers often balk at spending the money to pay for a home inspection. The borrower-scheduled inspection can cost between $300 and $500 depending on whether mold or radon testing is required. That price tag, on top of other mortgage loan fees and expenses, can make a borrower feel inclined to skip the inspection and save the money.

But those who choose the home inspection pay hundreds now to save thousands later. If you purchase a home with serious roof issues that cannot be detected by standing on the sidewalk and viewing the roof (the way an appraiser might), your final price tag for those repairs could go into the thousands, not hundreds.

Yes, we have repeated the home inspection mantra quite a bit in this article, but it’s an extremely important part of the house hunting process. Who purchases a car without test-driving it? Buying a home without having it inspected is the exact same thing.

One Final Red Flag To Watch Out For

Some house hunters may be offered a cash incentive, discount, or price break if they agree to buy the home without an inspection. One finance blog reports that a Chicago house hunter was offered as much as $5 thousand off the home if the buyer agreed to purchase without the inspection.

This is a major red flag and a VA borrower should run, not walk, away from such an offer as it often indicates serious problems with the property. In the specific case of the Chicago buyer, the home inspection was ordered anyway and found severe problems including rotting support beams, a sinking foundation, and the dangerous removal of a load-bearing wall.

That is just one example of what can happen. It’s a bad idea to tempt the fates and purchase a house without having it inspected. Relying on the appraisal alone is a recipe for disaster whether you are using a VA home loan or any other type of mortgage.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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