Understanding VA Home Appraisals
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Securing a VA mortgage to buy a house requires a VA home appraisal. This protects both the lender and the homebuyer from investing in a property that could turn out to be worth less than the asking price. To take advantage of the VA’s guaranteed veterans home loan program, which includes many benefits like waivers on a down payment or the typical mortgage insurance requirement that civilians have to pay, you’ll need an appraisal from a VA-licensed appraiser.
Why you need a VA home appraisal
The VA requires an appraisal of any property before it will agree to guarantee a VA home loan. Because the VA backs the loan, verifying the home’s condition and value is a critical part of the decision-making process on whether to approve the VA’s guarantee. The appraisal makes sure that the home you want to buy is worth at least your offering price. The VA and partner lenders also use appraisals to verify that the property meets their underwriting guidelines for making a loan.
“An appraisal is required to help ensure that any property which will become the security for a VA-guaranteed loan both has a value of at least as much as the loan amount, and is in a condition acceptable to VA,” Terrence Hayes, a spokesman for the U.S. Department of Veteran Affairs, told LendingTree.
A VA home appraisal also benefits the buyer. The goal of the VA home loans program is for veterans and their families to move in and enjoy their home at a fair price, not immediately start encountering problems with the property, or face what’s known as an “upside-down mortgage” or negative equity. This is a situation where a homeowner owes more on the loan than the house is worth.
Appraisal vs. inspection
A home inspection is not required for a VA-guaranteed mortgage. Even so, many homebuyers still choose to hire a home inspector before moving forward with the application process for a VA home loan.
An inspection is quite different from an appraisal. A home inspector will check the property’s heating and cooling systems, plumbing and electrical wiring, the condition of the roof, attic insulation, the structural integrity of the walls, ceilings, floors and doors, all windows and the foundation, as well as any basements. An inspection helps you avoid costly maintenance and repairs down the road — or at least lets you know what you’re getting yourself into before you purchase the home.
The VA appraiser’s job, on the other hand, is to determine “fair market value” for the home you’re considering. It’s highly unlikely a lender will approve a loan that is larger than the home’s appraised value. In determining fair market value, appraisers also look beyond the house itself and consider recent comparable home sales in the neighborhood to help set the property’s value, according to the VA’s home loans division. Your lender will pick an appraiser from a VA-approved list of professionals in your area.
“Regardless of the loan type, prospective homebuyers are not allowed to choose their appraiser,” says Chris Birk, director of education for Veterans United Home Loans, a VA lender.
Birk says federal guidelines and regulations are in place to ensure appraiser independence. This is critical to the mortgage process, he says, which requires the impartial analysis and evaluation of a home.
How much will a VA home appraisal cost?
Costs vary depending on where in the country you’re buying, according to Birk, who said VA appraisals can be costlier in more remote parts of the country.
In California, for example, the current VA appraisal fee on a single-family home is $600. Homebuyers in North Dakota, by comparison, can expect to pay up to $675 for an appraisal of a single-family residence, while in Virginia, a single-family home appraisal runs $525.
Homebuyers using a VA loan can find up-to-date appraisal fees for their state on the VA’s website.
The maximum appraisal fees allowed by VA is based on customary fees for similar services in a local area, says Hayes. “Regardless of the amount of the maximum fee, appraisers must not charge veterans more than they charge other clients for similar services,” he said.
In addition, the buyer is expected to pay the appraisal fee upfront, Hayes says, before the property review is conducted.
VA home appraisal requirements
Before moving forward, arm yourself with information. You can find out in advance what the VA appraisal involves for your state, as local regulations vary. Check the VA’s website for state-by-state requirements. Your lender will review the appraisal when it is complete to ensure it meets their underwriting standards, according to the VA’s home loan division. Lenders are required to give you a copy of the appraisal.
The VA appraisal consists of two elements — the valuation and an assessment of the property’s condition in light of the agency’s broad Minimum Property Requirements, Birk says. The appraisal help ensure homes are safe, sound and sanitary. If the appraisal turns up serious problems, sellers and even VA buyers can make repairs to keep the loan process moving forward, he adds.
Again, keep in mind that while an appraisal and a home inspection may seem similar, there are distinct differences. The appraiser’s job is to determine the current value of the home as is, while a home inspector concentrates more deeply on the home’s condition, especially possible future problems. An inspector may provide detailed estimates of needed or likely future repairs, while an appraiser only establishes the fair market value of the property. For example, an appraiser will evaluate whether the roof on a house is presently in good shape, while a home inspector will tell you if that the roof will need to be replaced in two years — a costly repair. A home inspection is much more in-depth than an appraisal, and that is why the VA as well as VA mortgage lenders like Veterans United recommend buyers also pay a home inspector to do a thorough review separate from the appraiser’s VA-mandated job. Here’s how it works:
Step 1: Lenders request an appraisal through the VA’s online system. The VA requires that the home be assessed to ensure it meets standards for planning, construction and general acceptability per a VA fee panel appraiser, who is randomly selected by the VA to perform the valuation. The appraisal only begins after the seller has accepted an offer. You won’t be paying for an appraisal on every house you bid on; just the properties on which the seller agrees to your price.
Step 2: The appraiser checks the conditions of all major systems and structures inside and outside the property. This includes the roof and the HVAC system. Appraisers also check the recent sales price of comparable properties in the area to establish a market value. When finished, the appraiser delivers a detailed report explaining how the house value was determined. An appraisal is typically done within 10 business days of placing the request, while VA-licensed appraisers are required to deliver the report within seven business days of completing the appraisal, Birk says.
Step 3: The VA reviews appraisals to ensure the value meets their requirements. Once the review is complete, a value determination is then made by either a VA staff appraiser reviewer or a delegated lender who will then issue a Notice of Value. If the appraisal falls within the agreed-upon sales price of the home, the lender can then move forward with processing and approving a VA-backed mortgage.
My VA appraisal was unfavorable. What can I do now?
A number of concerns can spur a VA home appraiser to come back with an unfavorable report. The owner may be asking an unrealistic price to sell. There could be safety issues, such as exposed wiring, problems with the foundation or structural cracks. In extreme cases, a VA home appraiser may determine the property is simply uninhabitable.
Structural, sanitary and safety problems must be resolved and verified before a VA home loan is approved. If the unfavorable appraisal is due to high seller pricing, or the buyer disagrees with the valuation, Birk says there are options you can pursue.
“Regarding a possible low valuation, VA buyers have a couple potential remedies,” he said. “First, VA appraisers can notify lenders that an appraisal is likely to come in low before the appraisal is finalized. With help from their real estate and lending teams, the buyer can submit additional comparable home sales to support the purchase price.”
If those efforts fail to improve the valuation, buyers can submit a formal appeal known as a Reconsideration of Value. Birk says this process also involves providing recent comparable home sales that weren’t used in the appraisal, or evidence of appraiser error, or both.
“VA buyers can talk with their lending and real estate professionals about the best way to approach a Reconsideration of Value,” he said.
The VA also offers these suggestions to sway a lender’s decision or keep the deal alive at closing after an unfavorable appraisal:
Renegotiate the sale price. The seller may be willing to accept a lower sale price that is equal to or lesser than the appraised value.
Bring cash to the closing table. If the Reconsideration of Value does not result in a higher value and the seller is unwilling to negotiate a reduced price, you might be able to pay the difference in cash at closing.