What Is a VA Appraisal and How Does It Work?
Understand the crucial VA appraisal: how it protects your home investment and ensures property eligibility for your VA loan.
A VA appraisal is a crucial step in securing a VA home loan, serving as a protective measure for both the borrower and the Department of Veterans Affairs. This process ensures that a property intended for purchase with VA financing meets specific safety and livability standards and is valued appropriately for the loan amount. The appraisal confirms the investment is sound before a loan is guaranteed.
Understanding the VA Appraisal
A VA appraisal is a specialized evaluation of a property that plays a unique role in the VA home loan process. Its primary objectives are twofold: to establish the property’s current fair market value and to ensure the dwelling meets the Department of Veterans Affairs’ established safety, structural soundness, and sanitary standards. This assessment is conducted by an independent appraiser assigned by the VA.
The VA appraisal differs from a standard conventional appraisal, which primarily focuses on market value to protect the lender’s investment. While conventional appraisals also consider property condition, they typically do not enforce the same strict, specific requirements as the VA’s Minimum Property Requirements. A VA appraisal is distinct from a home inspection, which provides a more comprehensive review of a home’s overall physical condition and potential issues.
Key Elements of a VA Appraisal
The VA appraisal process includes a thorough review against specific criteria, most notably the Minimum Property Requirements (MPRs). MPRs are standards set by the VA to ensure a home is safe, sanitary, and structurally sound for the veteran buyer. Examples of common MPR concerns that appraisers look for include adequate roofing without active leaks, functional heating and electrical systems, and proper drainage away from the foundation. Issues such as exposed wiring, pest infestations, or significant structural defects like foundation cracks must be addressed for a property to qualify for VA financing.
In addition to assessing MPR compliance, the appraiser determines the property’s fair market value. This valuation is typically based on recent sales of comparable properties in the area, ensuring the proposed loan amount aligns with the home’s actual worth. Once the appraisal is completed, the official findings are summarized in a document called the Notice of Value (NOV). The NOV details the appraised value, confirms whether the property meets MPRs, and lists any required repairs or conditions that must be resolved before the loan can close.
Navigating Appraisal Outcomes
If the VA appraisal identifies issues that fail to meet MPRs, specific repairs become a condition for loan approval. These repairs, noted in the Notice of Value, must be completed before the loan can close. A re-inspection by the assigned appraiser is necessary to confirm all deficiencies have been satisfactorily addressed.
In instances where the appraised value is lower than the agreed-upon purchase price, several options are available to proceed with the transaction. One option is the Tidewater Initiative, a process initiated by the appraiser if it appears the value will come in low. This initiative allows the buyer’s lender and agent a limited timeframe, typically 48 hours, to provide additional comparable sales data to the appraiser that might support the higher contract price before the final NOV is issued.
If the Tidewater Initiative does not resolve the discrepancy, or if the NOV has already been finalized, a formal Reconsideration of Value (ROV) can be requested. The ROV process involves submitting new evidence, such as overlooked comparable sales or factual errors in the initial report, to the VA for review. Other potential outcomes for a low appraisal include the buyer paying the difference between the appraised value and the purchase price, the seller agreeing to lower the sale price, or the buyer exercising their right to walk away from the deal without penalty.
A VA appraisal, or its associated Notice of Value, is typically valid for six months from its effective date for purchase loans. This validity period allows sufficient time for the loan process to conclude. If the loan does not close within this timeframe, a new appraisal may be required.