Say Bye-Bye to Invasive Home Appraisals for VA Loans

There are a lot of steps involved in buying a home, but one of the most nerve-racking is the home appraisal. 

An appraisal helps mortgage lenders determine a home’s fair market value and ensure it meets minimum standards. This information enables lenders to finance homes for what they’re worth. However, if the appraisal doesn’t align with the contract price, the homebuyer may have to make some tough decisions. 

Understanding Home Appraisals

The appraisal process typically includes a physical review of the home, including the roof, attic, basement, and mechanical systems. The appraiser will also pull information about comparable homes in the area to evaluate how the property being appraised measures up.

The appraiser then submits a property analysis report to the lender, who uses that information to determine the home’s fair market value and the amount of money they are willing to lend the buyer.

Ideally, the home will appraise at or above the contract price so the sale can proceed. However, most lenders won’t finance more than the appraised value of a home, so if the appraisal comes in lower than the contract price, the contract may have to be dissolved.

How the Home Appraisal Process Is Different for VA Home Loans

Although the majority of home loans require an appraisal, the approval criteria vary depending on the type of mortgage.

For example, US Department of Veterans Affairs (VA) loan appraisals are historically more intensive than appraisals for conventional mortgages.

To qualify for a VA loan, a home appraisal must meet the VA’s minimum property requirements (MPRs) that determine whether the home is safe, structurally sound, and sanitary. Examples of VA MPRs include:

• Working electric, heating, and cooling systems
• Roofing in acceptable condition
• Adequate living space
• Clean, continuous water supply
• No lead-based paint
• Free of wood-destroying insects, fungus, and dry rot
• Sanitary sewage disposal
• Accessible from a public or private street
• Accessible, vented attics and crawl spaces

How VA Loan Appraisal Requirements Impact the Buyer

These additional requirements for VA loan appraisals can affect the buying process in several ways:

• The buyer may not be able to secure a VA loan for older homes or fixer-uppers.
• The seller may decline an offer due to a delay in completing the more comprehensive appraisal.
• The seller may decline an offer due to the risk that the sale won’t go through if the property doesn’t meet the VA’s MPRs.
• The buyer might need to ask the seller to make repairs to align with the MPRs.
• The buyer may pay for repairs out of pocket.

It’s also important to note that the cost of a VA appraisal is higher due to the additional factors that must be evaluated.

Changes to VA Home Appraisals Make It Easier to Buy a Home

VA loan approvals typically take longer than traditional loan approvals, due in part to the appraisal requirements. This can put potential homebuyers at a competitive disadvantage, as sellers often want to close quickly and may reject VA loan offers.

To mitigate this disadvantage and streamline the VA appraisal process, the US government passed HR 7735 in 2022. This bill, known as the Improving Access to the VA Home Loan Benefit Act of 2022, introduced several new and updated requirements that impact the appraisal process. 

To summarize, the bill requires the US Department of Veterans Affairs to update its rules and requirements for how appraisals are conducted for VA home loans. These updates should clearly define when an appraisal is needed, how it should be done, and who is allowed to do it.

Additionally, the VA must submit to Congress recommendations for reducing the time it takes to process VA loan appraisals and include these recommendations in the rule updates. 

One of the most significant changes introduced by HR7735 is the requirement for more guidance on desktop appraisals. This type of appraisal doesn’t require an in-person inspection of the property. Rather, a VA-approved third-party appraiser uses comparable properties, tax records, and other publicly accessible documentation to appraise the value of the home.

According to the bill, the VA must give greater consideration to circumstances in which a desktop appraisal provides cost savings for the homebuyer or the time constraints of the traditional appraisal process could cause an offer to be rejected by the seller.

Contrary to a rumor circulating in 2023, the VA does not intend to roll back VA appraisal fees or eliminate appraisals. However, HR 7735 will make the appraisal process faster and easier by permitting hybrid appraisals and loosening policies on property inspection waivers, MPRs, and comparable home sales.

Home Buying Is Complicated; Work with a Lender That Understands

Buying a home requires a big commitment of both money and time. Working with a mortgage lender who understands the intricacies of the homebuying journey and the specific challenges associated with VA loans can help expedite other parts of the process to make up for longer appraisal times and provide confidence that you are getting answers straight from an expert. 

Want to learn more about navigating the homebuying journey? Check out “The Essential Checklist for First-Time Homebuyers” for answers to common questions about applying for a mortgage and purchasing a home.