VA loans: A gift for veterans
If you have any U.S. military experience, you should be considering a VA loan.
It’s a zero-down, 100% financing home loan with no monthly mortgage insurance. It’s the only home loan with all these features.
Still, many VA-eligible home buyers opt for FHA or conventional loans. Why? Usually, the lender says that VA loans are too difficult or the seller won’t accept the offer.
However, these myths are well, myths, and veterans should still try for a VA loan.
One sticking point (again, a myth) is that VA appraisals are overly onerous. Actually, they are not much different (and perhaps even easier) than the FHA appraisal process.
If you’re a veteran or active military and seeking a home loan, try VA first.
So what’s with the VA appraisal, anyway?
A VA appraisal is central to the VA lending process. They are a huge protection for VA borrowers. How does the VA know if a home meets its standards? How does the VA protect borrowers? Through the VA appraisal process.
Although some conventional loans allow AVMs — Automated Valuation Models — VA doesn’t as of yet allow it. But that’s not a bad thing.
AVMs use artificial intelligence and big data to determine a home price. But no one enters the property.
While AVMs can be valuable in some situations that is not always the case. Imagine the AVM report for a property with 86 cats. The existence of those cats does not show up anywhere, but they could be destroying the property. A real-life, human appraiser will certainly take note.
Cost of a VA appraisal
A VA appraisal costs about $500 in most markets. But expect to pay more for unique properties like waterfront homes, homes on acreage, or properties without a lot of comparable sales.
For VA borrowers it’s money well spent. How come? Two reasons stand out.
A VA appraisal assures you will pay no more than the fair market value for the property you select.
First, you don’t want to overpay for the property. If you overpay you will need a bigger mortgage. You’ll pay more interest and likely face larger property taxes than would otherwise be the case. You might be out thousands of dollars. A VA appraisal assures you will pay no more than the fair market value for the property you select.
Second, appraisals are not a substitute for property inspections, however VA appraisals must assure that the property meets the VA’s “Minimum Property Requirements” or MPRs. While a VA appraiser will not “perform operational checks of mechanical systems or appliances” they are required to verify that the property is “safe, structurally sound and sanitary.”
Repairs needed per the VA appraisal
In many sale transactions both parties can agree that certain repairs are needed. In such situations the seller might complete the repairs prior to closing, agree to provide a certain credit so the buyers can complete the work to their satisfaction, or discount the sale price. Such options are not possible with VA financing.
“The appraiser,” says the VA, “will prepare origination appraisals ‘subject to’ the completion of any MPR repairs that appear to be needed and include the contributory value of the completed repairs in the estimated market value.”
The VA appraiser cannot simply say the borrower should get a problem area checked out by a repair professional.
It adds that “appraisers must not prepare appraisals subject to inspections. The appraiser must recommend repairs, not inspections, for any conditions that do not appear to meet MPRs.”
Translation. A VA appraisal is not valid unless repairs are completed prior to closing. The VA appraiser cannot simply say the borrower should get a problem area checked out by a repair professional.
In some transactions a battle develops over what needs to be repaired and what doesn’t. Frivolous and minor items become the subject of heated debate. Sometimes the arguments are really about ego and status.
The VA gets around the problem of trivial repairs by telling appraisers to see them in context.
“The appraiser,” says the VA, “should not recommend repairs of cosmetic items, items involving minor deferred maintenance or normal wear and tear, or items that are inconsequential in relation to the overall condition of the property. While minor repairs should not be recommended, the appraiser should consider these items in the overall condition rating when estimating the market value of the property.”
Waiving MPR repair requirements
All homes are unique. While borrowers cannot waive VA appraisals the VA will consider requests to waive MPR repairs under three conditions.
- The request is signed by the Veteran borrower.
- The lender agrees with the Veteran’s request.
- The property is habitable from the standpoint of safety, structural soundness, and sanitation.
A waiver request is just that, a request. The VA can accept or reject a repair request as it prefers.
For more information, speak with loan officers who specialize in VA financing.
Check your VA loan eligibility
Sure, VA appraisal requirements might be a touch more stringent than those for conventional. But it protects the veteran and ensures safe living standards.
Check your eligibility for the best loan type in the market, the VA loan.