Who Pays for VA Appraisal Repairs?

When a home purchase involves a VA loan, the process includes a specific appraisal designed to protect both the homebuyer and the government’s interest in the loan. This appraisal goes beyond simply determining the property’s market value; it also assesses the home’s condition. A common question arising during this process is who bears the financial responsibility for any identified repairs necessary to meet the Department of Veterans Affairs’ standards. Repair costs can significantly influence the transaction for both the homebuyer and the seller.

VA Appraisal Scope and Property Requirements

A VA appraisal establishes the property’s fair market value and ensures it meets specific safety, structural, and health standards. This evaluation is distinct from a home inspection, which offers a more exhaustive review of a property’s physical condition.

VA appraisals are mandatory for all VA purchase loans, conducted by an independent VA-approved appraiser. The appraiser assesses the property against the Department of Veterans Affairs’ Minimum Property Requirements (MPRs).

These requirements ensure the home is safe, structurally sound, and sanitary. Any deficiencies noted by the appraiser must be addressed before the loan can be finalized.

Common issues include structural defects like significant settlement, excessive dampness, or decay. The appraiser also checks for active pest infestations, such as termites, fungus, or dry rot. A leaky or inadequate roof often requires repair.

Health and safety concerns are a primary focus. This includes non-functioning mechanical systems like heating, electrical, and plumbing. Exposed wiring, missing staircase handrails, broken windows, or peeling paint in homes built before 1978 are frequently flagged. Properties must also have safe street access and a continuous water supply with proper sewage disposal.

Parties Responsible for Repair Costs

The VA loan program does not explicitly assign repair costs to either the buyer or the seller. However, market practice generally places the responsibility for addressing MPR-related deficiencies on the seller.

The property must meet VA MPRs before the loan can be guaranteed. This makes these issues the seller’s obligation to ensure the sale proceeds.

Buyers are prohibited from paying for MPR-related repairs before closing, as these are conditions of the loan’s approval. This prevents veterans from incurring out-of-pocket expenses for items the seller should remedy.

If a seller is unwilling to complete necessary repairs, a VA homebuyer may be unable to proceed with the purchase using VA financing. Negotiation plays a significant role in determining who ultimately pays for repairs, particularly for items not strict MPRs but noted by the appraiser or home inspector.

The buyer can request the seller complete all identified repairs, or negotiate a price reduction to account for repair costs. Utilizing a real estate agent experienced in VA loans can be beneficial.

Seller concessions can also be a negotiation tool. These are financial contributions from the seller to the buyer, limited to 4% of the loan amount, excluding normal closing costs.

Concessions can cover expenses like the VA funding fee, prepaid property taxes, or paying off certain buyer debts. This frees up the buyer’s funds for other purposes, including minor post-closing repairs not covered by MPRs.

Repair Completion and Funding Mechanisms

Once repairs are identified by the VA appraiser, they must be completed and re-inspected before the loan can close. The most common approach is for the seller to undertake and pay for these repairs directly.

After work is finished, the VA appraiser conducts a re-inspection to confirm all required items meet the MPRs. This may incur an additional re-inspection fee, typically around $150.

In some limited circumstances, a repair escrow, also known as an escrow holdback, can be utilized. This mechanism is reserved for minor repairs that do not affect safety or habitability and cannot be completed before closing due to unavoidable reasons, such as weather.

Funds, often 1.5 times the estimated repair cost, are placed in an escrow account, usually by the seller. These funds are released to the contractor once repairs are finished and verified after closing.

Repairs completed via an escrow holdback typically have strict timelines, often requiring completion within 14 to 30 days of loan disbursement. This option is not for major renovations or repairs that prevent immediate occupancy. The property must be otherwise move-in ready.

Seller concessions, while not directly funding repairs that are conditions of the VA loan, can indirectly assist the buyer. By covering allowable closing costs, concessions can reduce the cash the buyer needs at closing, enabling them to address minor, non-MPR related repairs after taking possession.

After the loan closes, any remaining repairs not mandated by the VA’s MPRs or covered by specific agreements become the buyer’s responsibility. Buyers should understand what repairs are required for loan approval versus desired improvements, as the latter will be at their own expense. They should ensure a clear understanding of the property’s condition and any outstanding repair obligations before finalizing the purchase.