Everything You Should Know About VA Appraisals

A VA loan appraisal is a professional evaluation of the home you intend to purchase with a VA home loan. A VA appraisal is done by a licensed real estate appraiser and is used to determine the fair market value of the property. The VA will also use it to ensure the home meets the VA loan program’s minimum property requirements and is safe for living in.

The VA will only guarantee loans on homes that are safe for veterans, military members, and their loved ones to live in. That means all properties must meet certain minimum requirements before a VA loan can be issued.

In order to be eligible for a VA loan, a home must offer:

• Access to continuous water supply, sanitary facilities, and sewage disposal
• Adequate roofing in good condition
• No lead-based paint or wood with dry rot, fundus, or wood-destroying insects
• Working electric and HVAC systems
• Accessibility from a public or private street
• Proper ventilation in attics and crawl spaces
• It also must have “sufficient space” for things like living, sleeping, cooking, dining, and other daily activities. There are other requirements pertaining to encroachments, utilities, zoning and more, but essentially the home must be free of hazards and generally safe for habitation.

A VA home inspection is not the same as an appraisal. Unlike appraisals, home inspections are not required under the VA program. Additionally, they are not used to determine a property’s value nor are they delivered to the lender. Instead, home inspections are used for buyers only, allowing them to make a more informed decision about the house they intend to purchase. They offer details about the home’s condition, as well as any repairs that need to be made to the property or its systems.

Though inspections usually come with a $300 to $500 fee, most buyers choose to purchase one before buying a house. Any findings can be used to renegotiate the purchase price or ask the seller for repairs before closing day.

The VA appraisal is ordered by your mortgage lender. They’ll submit an official request via the Department of Veterans Affairs’ online portal, and the VA will dispatch an approved appraiser to the property. Buyers have no say in their appraisers or when the appraisal is conducted.

Appraisals can take a while, so most lenders request one as soon as you’ve put a home under contract. You can check with your loan officer about the status of the appraisal after it’s been ordered. Sometimes, this can take up to a few weeks.

The VA orders appraisals for two reasons:

1. To assess the home’s value. Since the VA is guaranteeing the loan, it needs to be sure the property is worth what you’re borrowing for it.
2. To make sure it’s safe for inhabiting. The appraisal will evaluate the home against the VA’s minimum property standards to ensure it’s hazard-free and safe to live in.

If the appraisal deems the home unsafe or not worth the full loan amount, you’ll need to consider alternative options. (More on this below)

Aside from ensuring the home meets minimum property requirements, the appraiser is also going to look at a number of factors that impact the property’s value. These include things like its size, features, upgrades, and the general condition of the home. They will also take into account other recent home sales in the area, which can help point to a fair market value of the property in the current market.

According to VA loan inspection requirements, appraisals are only required on cash-out refinances. If you’re doing an IRRRL — Interest Rate Reduction Refinance Loan — you typically will not need an appraisal.

Appraisal fees generally vary by location and home type (single-family vs. multifamily, for example), but the typical VA appraisal cost is usually between $400 and $600. In some cases, it could go up to $1,000.

The appraisal fee is generally paid by the buyer. It will be included in your closing costs and due at your closing appointment, along with any down payment you may make.

VA loan appraisers are randomly assigned by the Department of Veterans Affairs, and there is no way to request a specific one. This prevents any undue conflict of interest with your loan.

VA appraisers aren’t necessarily harder on homes than conventional appraisers, but they do evaluate properties against different standards. The VA has strict requirements for properties it will finance, both to ensure the homeowner’s safety and the property’s value in the long run.

Two problems could arise with a VA appraisal: The home value comes in too low (meaning lower than what you’ve offered for the home) or it doesn’t meet the VA’s minimum property standards. See below for details on how to handle these scenarios.

If the appraiser notes noncompliance with any of the VA’s minimum property requirements, these issues will need to be remedied. An appraiser will have to come out a second time to review any repairs before the VA will approve the loan.

In some limited cases, a lender might allow you to use an escrow account for repairs (the seller would pay into this at closing), so you can complete the upgrades after finalizing your loan.

If your VA appraisal reveals a market value that’s less than the loan you’re requesting, you have a few options:

1. Appraisers can invoke the VA Tidewater Process. This process allows the Veteran and seller two days to gather information to defend their original agreed-upon price. The appraiser then reviews the information and determines whether or not to change the initial appraised price.
2. Ask for a reconsideration of value. When you do this, you’re requesting that the home be adjusted based on comparable home sales not used in the initial appraisal. You can work with a real estate agent to find comparable sales that can help your case.
3. Renegotiate the price. You can also go back to the seller and see if they’ll accept a lower offer based on the appraisal. If you update the contract and agree to a new price that aligns with your appraisal, you can continue on with your transaction as planned.
4. Pay the difference. If you have the funds, you can also make up the difference between the appraised value and your offer in cash.
5. Back out of the deal. Can’t come to an agreement on a new price? As long as you had a financing contingency in your contract, you can back out of the transaction entirely.

If your appraisal comes in low, be sure to talk to your loan officer and real estate agent. They may have guidance that can help your specific scenario.