A VA appraisal involves a thorough inspection of the home and property to determine the current market value of the home. This appraisal is especially geared towards reporting any defects involving safety or security of the home.
So, how does this fit into the VA loan process?
Simply put, even though the VA focuses on assisting veterans in financing a home, the VA must also take precautions to protect the investments of both the borrower and the VA itself with a good appraisal.
Let’s say that a California veteran or member of the military finds a house that he wants to purchase for $500,000. The house seems to be exactly what he’s looking for; single story, pool in the backyard, freshly painted, and located in a nice family neighborhood.
He decides that he wants to use his use his hard-earned military benefits to get a zero money down VA loan. In other words, if approved, he’ll receive a fully financed $500,000 VA loan.
As part of the standard VA loan approval process, a VA-appointed appraiser goes to the property to do an appraisal of the actual worth. Unfortunately, the appraiser discovers that the house needs a new roof, there are cracks in the pool cement, and there are severe irrigation issues throughout the property that need to be fixed, among other miscellaneous flaws.
Tallied up, the appraiser determines the value of the home and property to be $475,000 instead of $500,000.
Because of the large difference between what the seller is asking for and the actual value of the property, the VA ultimately turns down the loan.
Of course, this is a somewhat extreme example, but you get the idea. The VA needs to verify that the actual value of the home and property is close to what a potential borrower wants to pay for it. Neither a mortgage bank to the the VA want to insure homes that are worth less than the loan then you applied. However, if the Veteran believes the home to be worth the full price, he still could pay the difference between the appraised value and the purchase price. Quite often in these situations, the seller and buyer will be able to negotiate a price and still get the deal done.
Here is a list of things to consider when shopping for a new home:
- The appraiser needs to inspect both the inside and the outside of the house. If the house in question is being constructed, the appraiser still needs to analyze the property and construction site.
- The official appraisal report will contain a list of “observable repairs that need to be completed.”
- This report will also contain a list of “customer preference items to be installed.”
- A few small issues with the property won’t immediately disqualify it, but a lot of small issues or a few big issues may.
VA sets the price for most California VA appraisals at $600. (2017)
Authored by Tim Storm, a California VA Loan Officer specializing in VA Loans. MLO 223456. – Please contact my office at the Home Point Financial. My direct line is 949-640-3102. I will prepare custom VA loan scenarios which will be matched up to your financial goals, both long and short term. I also prepare a Video Explanation of the your scenarios so that you are able to fully understand the numbers BEFORE you have started the loan process.