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.
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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